AUSTRALIAN banks have been forced to shift to a cautious footing on funding with money markets in Europe effectively closing, says the ANZ chief executive, Mike Smith.
Global markets were jolted yesterday by fresh fractures emerging in Europe. The Australian market fell to its lowest for the year.
The falls were prompted by growing expectations that Greece will leave the eurozone and fresh concerns about the health of the Spanish banking system.
Australia's benchmark S&P/ASX200 fell 110.9 points, or 2.67 per cent to 4046.5, marking a biggest single day loss since November.
The Australian dollar also fell to its lowest level in almost six months, trading last night at US98.24¢.
Meanwhile, Australian government borrowing costs continued to hit fresh lows as investors looked for safe havens.
Fitch Ratings cut Greece's rating a notch to CCC amid fears anti-austerity parties will triumph in new elections set for next month and drive the troubled country from the eurozone.
Moody's downgraded 16 Spanish banks, citing the effects of the country's recession and reduced creditworthiness of the country's government.
''Fears over Greece and the consequences of capital flight from peripheral European banks sent a shudder through markets everywhere. Equities are a sea of red. Asian bourses are especially weak,'' said Adam Donaldson, head of debt research at Commonwealth Bank.
Even as the European crisis unfolds, Mr Smith said the world was not yet looking at a Lehman-style credit crunch with money markets in Asia and the US still open.
''The situation is more manageable than 2008 when we had the shock collapse of Lehman's and Australian banks are well placed right now,'' Mr Smith said yesterday.
''We have really had two years to anticipate and to plan for the scenario that's now unfolding in Greece and southern Europe.''
The real problem in Europe was not so much the economic contagion but the ''political contagion'' spreading through the region, Mr Smith said.
This week Commonwealth Bank's chief executive, Ian Narev, said his bank has been preparing for some time for a possible exit of Greece from the eurozone.
While this would soften the financial shock for the bank, the implications of such a move would be "material", Mr Narev told an analyst briefing.
Former Future Fund chairman David Murray has said Europe's raging financial storm represented a growing threat to Australia's banks that are still dependent on offshore credit markets to fund their business.
Mr Murray said Australia's finance system could not escape the ''longer term liquidity consequences'' of the squeeze on global credit markets.
''The contagion through the banking sector and government and the banks is the immediate issue,'' Mr Murray told BusinessDay.
Even Greek stocks may rally once Greece leaves the eurozone - Calgary Herald
The unrelenting and escalating sovereign debt crisis in Europe promises further losses ahead for the region’s already stressed equity markets, but a stock rebound could come sooner than many investors are expecting if Greece exits the eurozone, say analysts.
“The growing possibility of a Greek exit from the European Monetary Union suggests caution remains the watchword for now,” said John Higgins, an economist at Capital Economics. “But once the dust settles, stock markets could fare much better — even in Greece.”
Investors have redoubled their anxiety about eurozone economies that are drowning in government debt and struggling with severe austerity measures after taking a brief hiatus late last year through the early part of 2012.
The Euro Stoxx 50 index listing of the biggest stocks on the continent is down 17% since early February and regional benchmarks have posted even bigger losses. Spain’s IBEX 35 is down 26% over the same period and Greece’s ASE index is down 35%.
The only major European exchange that has made money for investors this year is Germany’s DAX, which, given its relatively superior economic performance, has become a refuge of sorts for investors.
Mr. Higgins said the sharp fall in equity prices has driven valuations down to attractive levels in many eurozone nations, both historically and relative to other countries.
While it’s too soon to expect eurozone stocks to recoup all of their lost ground, he thinks it wouldn’t be long before Greece’s stock market bounced back if the country leaves the single currency area. He said that’s because currency depreciation of a new Drachma would spur economic activity.
“Granted, it would probably be a rough ride in the short term as capital continued to flee the country and contagion fears prompted a world-wide increase in risk aversion,” Mr. Higgins said.
Mr. Higgins said stock markets of other weak countries that remained in the eurozone would also rebound after initially coming under further pressure. But gains would likely be less than those in Greek markets, because those countries would not benefit from significant currency depreciation.
Karen Olney, a strategist at UBS AG, said it is tempting to turn bullish on European equities, but doesn’t advise it at the moment.
In addition to Greece, she remains concerned about Spain’s banking sector — which remains undercapitalized despite additional provisions — and France’s change in leadership.
“[French President François] Hollande hasn’t announced any austerity measures,” she said. “If he does, someone suffers; if he doesn’t, the bond market could force it.”
Ms. Olney said the muted risk appetite of global investors also makes it hard for European stocks to rally, particularly when there’s not enough good news coming from the United States and China.
If and when confidence returns, she likes European value stocks, which have fared 40% worse than growth names since January 2011, and cyclicals that are down near their previous lows.
“Buy Europe over the United States given relative valuations look stretched,” she added. “Just not yet.”
US stocks edge higher ahead of Facebook IPO - Miami Herald
It's going to take more than Facebook's initial public offering to push the stock market higher.
U.S. stock indexes were flat-to-down slightly in early afternoon trading Friday. Facebook made its Wall Street debut, fashionably late, after a computer glitch. Facebook shares were supposed to start trading at 11 a.m. Eastern, but started about half an hour late. Nasdaq said it had trouble delivering trade execution data related to the IPO.
The glitch sent shares of Nasdaq OMX Group Inc., parent company of the Nasdaq market, down 2.9 percent.
The Dow Jones industrial average has been on a prolonged slump over the past two weeks as traders saw an escalating risk that Greece could leave the euro. It has fallen 11 out of the past 12 days and is down 6 percent in May. The Dow hasn't had a losing month since September.
On Friday, the Dow was down 13 points at 12,429. The Standard & Poor's 500 index fell 0.74 points to 1,308. The Nasdaq fell nine points to 2,804.
Hewlett-Packard Co. was the biggest decliner on the Dow, falling 2 percent on news that it was considering major layoffs.
News out of Europe did little to encourage investors.
After an election in Greece that brought in political parties opposed to bailouts for the beleaguered country, the Fitch ratings agency dropped the nation to the lowest possible grade for a country not in default Thursday. Fitch said that if elections next month do not reverse the political trends in Greece, that the country's departure from the euro "would be probable."
Also, ratings agency Moody's downgraded 16 Spanish banks late Thursday, three days after downgrading Italy's, noting they are vulnerable to huge losses on government debt.
Representatives of the G-8 are meeting this weekend at Camp David, looking for assurances that leaders in Europe can contain damage if Greece leaves the euro.
European shares edged lower, following several days of big losses. Britain's FTSE 100 fell 0.1 percent, Germany's DAX lost 0.6 percent and France's CAC-40 fell 0.1 percent.
In the U.S., shares of Salesforce.com jumped 10.6 percent after the maker of web-based business software reported better-than-expected earnings and raised its guidance for the year. Gap fell 0.9 percent after dropping 3 percent earlier in the day, even though it issued higher guidance for the year.
Shares of Yahoo Inc. rose 5.3 percent after Dow Jones' tech website AllThingsD.com reported that the web portal is close to a deal to sell a large part of its stake in China's Alibaba Group. Many investors view the Alibaba stake as Yahoo's most valuable asset.
Foot Locker Inc. rose 10 percent after its quarterly profit jumped 36 percent, sprinting past Wall Street predictions and setting a company record for quarterly earnings.
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