TOKYO: Asian shares and the euro fell today as a surge in Spanish government bond yields renewed concerns about the euro zone’s sovereign debt crisis and undermined investor appetite for riskier assets.
MSCI’s broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 0.8%, dragged lower by the materials sector .MIAPJMT00PUS, which underperformed other sub-indexes with the broad drop in commodities prices.
Spain’s government bond yields jumped on Friday and the cost of insuring its debt against default hit an all-time peak as record borrowing by its banks from the European Central Bank highlighted fears about the country’s finances.
“Market focus is firmly back on the EUR,” Barclays Capital analysts said in a research note. “Concerns about Spain have lingered and the market may be responding to any perceived lack of support for the periphery.”
The dollar’s strength pushed precious metals lower, with spot gold down 0.5% to $1,650 an ounce, extending Friday’s 1% loss, while spot platinum slid more than 2% to $1,559 an ounce, its lowest since Jan 25.
Industrial commodities also took a beating, with Brent crude oil shedding more than a dollar to a low of $120.06 a barrel, and Shanghai copper falling more than 2% to a three-month low of 56,700 yuan per tonne.
Investor sentiment has also been hurt by worries about slackening demand from China, the world’s second largest economy, after data showing a slowdown in private domestic demand, retail sales and fixed asset investment and a sharp drop in property and home sales, which weigh on construction demand.
“Worries among international investors appear unjustified, as it would be easy for the government to re-accelerate growth if it chose to do so,” said Dariusz Kowalczyk, senior economist and strategist, Asia ex-Japan, at Credit Agricole CIB.
A move by China on Saturday to double the size of the yuan’s trading band against the dollar was also seen by investors as a strong signal that Beijing is comfortable with economic growth and believes it has avoided a hard landing.
“Prices have recently been moving sharply while volumes are not picking up necessarily,” noted Koichiro Kamei, managing director at financial research firm Market Strategy Institute in Tokyo. “That reflects a programming typical for funds aiming to hit specific market levels in thin volume to create a near-term trend and maximise profits in a range-bound market,” he said.
Reflecting investor nervousness, fund groups specializing in riskier asset classes struggled during the second week of April, EPFR Global said. EPFR Global-tracked High Yield Bond Funds saw an 18-week inflow streak come to an end with an outflow of $1.4 billion.
Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 5 basis points.