Ban on Greek bonds hits EU; Greece drops

A man looks at monitors showing the general index inside the Athens stock exchange which suffered a six per cent decline on Thursday. — Reuters

London — A euro regains some ground after European Central Bank decision to strike Greek bonds off its list of accepted collateral rattled European markets on Thursday, sending shares into reverse and investors back into safe-haven German bonds.

As pressure on Greece’s new anti-austerity government ratcheted up, the pan-European FTSEurofirst index dropped 0.4 per cent. The euro tumbled overnight. Greek bank shares fell 15 per cent, leading a six per cent decline by the Athens stock market. Yields on 3- and 5-year Greek debt climbed 220 and 190 basis point respectively.

The ECB move means the Greek central bank will have to provide Greek banks with billions of euros of emergency funding. Assuming the ECB Governing Council approves the decision, it marks the eurozone central bank’s most serious response yet to Greece’s efforts to rewrite its aid-for-reform agreements.

The head of Germany’s Bundesbank, Jens Weidmann, said the ECB needed to be strict in allowing emergency funding for Greek banks. “(Emergency liquidity assistance) should only be awarded for the short term and to solvent banks,” Weidmann told the business newspaper Boersen Zeitung.

“I am of the view that we should apply strict standards with ELA. If that should have consequences for financial stability, then politicians must live up to their responsibilities.”

The euro dropped after the ECB decision late on Wednesday. It has recovered trade at $1.1372 by 0915 GMT, up 0.25 per cent from late US trade. It got a lift from German industrial orders, which reached their highest since April 2008. That suggested the euro’s 20 per cent drop over the past six months was starting to benefit German exporters. The ECB’s ban on Greek bonds worried Asian stock markets.

Japan’s Nikkei fell one per cent after rising two per cent on Wednesday. Shares in South Korea, Malaysia and Singapore also fell. MSCI’s broadest index of Asia-Pacific shares outside Japan was flat after climbing one per cent on Wednesday.

Chinese shares lost one per cent. Wednesday’s move by the Chinese central bank to ease policy failed to lift the mood in the rest of the region. “Although the move by PBOC does ease credit and may be beneficial to stimulating demand, it is also a clear sign that growth in China is declining at faster rate than previously thought,” Boris Schlossberg, managing director at BK Asset Management, wrote in a note to clients.

The dollar was little changed against the yen at 117.215 yen. The market was waiting for US employment data on Thursday and then Friday’s non-farm payrolls report.

Sensex slides

Indian stocks slid for a fifth day, erasing an intraday advance, after an increase in bad loans at Indian Overseas Bank renewed concern about lenders’ asset quality.

Indian Overseas Bank plunged the most in six years and UCO Bank fell the most in five months after bad-debt ratios widened at the state-owned banks. Tata Power Co, the biggest non-state generator, plunged the most since August 2013 after its sales missed estimates. HDFC Bank climbed on plans to raise as much as $1.5 billion to bolster its capital.

The S&P BSE Sensex fell 0.1 per cent to 28,850.97 at the close, reversing gains of as much as 1.4 per cent in the final hour of trade. A gauge of 12 lenders declined for a third day, the longest run of losses in four months.

The banking system isn’t close to a crisis, central bank Governor Raghuram Rajan said in a Bloomberg TV interview in Mumbai on Wednesday after three of the nation’s five-biggest lenders posted an increase in bad-loan provisions in their latest earnings filings.

HDFC Bank rose 0.8 per cent after the nation’s top lender by market value began selling $1.5 billion of shares in the US and India to boost capital. The stock climbed as much as 2.4 per cent earlier.

Gold falls

Gold edged lower on Thursday as uncertainty in Greece after the European Central Bank said it would no longer accept Greek bonds in return for funding left investors on the sidelines.

Spot gold fell 0.5 per cent to $1,263.51 an ounce by 1055 GMT, while US gold futures for April delivery were unchanged at $1,264.00 an ounce.

Bullion failed to capitalise on a fall in European equities and was trading in a $10 an ounce range ahead of Friday’s US employment data.

The metal dipped despite the euro staging a modest rebound against the dollar after positive German data, which however kept it well below a two-week peak hit on Tuesday.

“It is unusual to see gold and the dollar move in the same direction but ... for the market to really care about what is happening in the eurozone we need to be closer to an exit of Greece than we have been in the past,” Julius Baer analyst Carsten Menke said.