The euro hit a three-week low against the US dollar and bonds edged higher on Thursday as Spain’s debt burden fueled worries of further problems for eurozone economies and curbed appetite for riskier assets.
Global stocks dipped, while energy and gold prices climbed.
A poor Spanish bond auction on Wednesday added to worries the impact of the European Central Bank’s (ECB) 1 trillion euro (US$1.3 trillion) injection of cheap three-year funds into the banking system might be coming to an abrupt halt.
Spanish 10-year government bond yields rose as high as 5.86 percent on Thursday, dragging Italian rates in their wake as investors fled to the relative safety of German and US debt.
The moves follow two days of losses in stocks and other markets after minutes from the last US Federal Reserve meeting released on Tuesday dented hopes of further economic stimulus.
“The eurozone firewall set up is not big enough to save Spain,” said Dan Dorrow, director of research at Faros Trading in Stamford, Connecticut. “If the ECB were the Fed right now, they would be embarking on quantitative easing or lowering rates, but the ECB is more passive in its approach, which is dangerous, and I think they are walking a tightrope.”
The worries added a safety bid for bonds, with the benchmark 10-year US Treasury note up twelve-thirty-seconds, the yield at 2.1805 percent.
The euro was last down 0.6 percent at US$1.3064 against the US dollar, having hit a three-week low of US$1.3033. It also hit its lowest in four weeks against the yen at ￥106.86, before recovering to trade at ￥107.58, still down 0.7 percent.
Spain’s cost of borrowing on markets over 10 years jumped 30 basis points on Wednesday after borrowing costs rose at its bond auction. The yield premium over German benchmarks is now 411 basis points, its highest since late November last year before the ECB flooded the market with three-year funds.
The MSCI world equity index was last down 0.1 percent. US stocks ended nearly flat, but the S&P 500 registered its worst week this year.
The Dow Jones industrial average was down 14.61 points, or 0.11 percent, at 13,060.14. The S&P 500 Index was down 0.88 points, or 0.06 percent, at 1,398.08. The NASDAQ Composite Index was up 12.41 points, or 0.40 percent, at 3,080.50.
Offsetting the concerns over Spain for US stocks was data showing the number of Americans lining up for new jobless benefits fell to the lowest in nearly four years last week.
Analysts said the claims data and a report on private-sector jobs earlier this week might bode well for the US government’s widely watched monthly employment report, which was due in yesterday. The US stock market was closed for an extended Easter weekend.
The US outlook was in sharp contrast with Europe where separate reports showed German industrial output fell more than expected in February and British factory output suffered its biggest monthly fall in almost a year.
Europe’s FTSEurofirst 300 index ended up 0.1 percent, but banking stocks, many of which have large exposure to the region’s lower-rated sovereign debt, edged lower.
UniCredit and Commerzbank, which both have exposure to eurozone peripheral debt, were also hard hit, down 3.1 percent and 1.9 percent respectively.