Asian shares fell yesterday, taking their lead from overnight plunges in global equities while currency markets remain volatile as no party has won a senate majority in Italy’s elections, extending fears of a resurgent eurozone debt crisis.
The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.4 percent, dragged down by a 1.1 percent slide in Australian shares and a 0.6 percent drop in South Korean shares.
Italy’s center-left coalition is set to win a majority in the lower house of parliament, but the upper house will be deadlocked, the Italian Ministry of the Interior said yesterday after almost all votes were counted.
No party or coalition won a majority of seats in the Senate, which a government would need to pass legislation.
A split parliament in the eurozone’s third-largest economy is seen as likely to paralyze any new government and potentially reignite the eurozone debt crisis.
“Uncertainty over the Italian election outcome and its impact will certainty keep the euro under strong pressure for some time,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
“A safety net has been provided over the past year in the eurozone and given the size of Italy’s economy, I doubt that the situation will turn into a disaster, but we need to carefully monitor developments. It revives memories of risks in the eurozone,” Saito added.
The focus was on an Italian treasury bill auction yesterday when borrowing costs could have risen, given the senate election result.
The euro was up 0.2 percent at US$1.3085, off a more than six-week low against the dollar of US$1.3047 touched on Monday on jitters about political gridlock in Italy hampering the country’s efforts to reform and slash its debts.
The yen soared as much as over 3 percent against the euro and 2 percent against the dollar on Monday as the yen’s recent steep losses on bets of aggressive reflationary monetary policy in Japan have made it vulnerable to sharp reversals.
On Monday, the yen rose to a three-week high of ￥90.85 from its intraday low of ￥94.77 touched earlier in the day, its lowest since May 2010. The yen also surged to ￥118.74 against the euro from its day’s low of ￥125.36.
Traders said the plunge in the dollar and the euro against the Japanese currency has provided fresh opportunities to buy these currencies against the yen, with many market players still seeing a weak yen trend continuing.
Investors were also awaiting testimony later yesterday from US Federal Reserve Chairman Ben Bernanke for further clues of when the Fed intends to slow down or stop its bond-buying program.
Financial markets were rattled last week by minutes of the Fed’s meeting last month showing some Fed officials were mulling scaling back its strong monetary stimulus earlier than expected.
“Bernanke’s testimony will likely drive global market sentiment tonight, as markets wait for clues on the Fed’s exit strategy for its bond-buying stimulus program. Our house view is that Bernanke will remain dovish,” ANZ said in a note.
Ahead of Bernanke’s appearance, Federal Reserve Bank of Atlanta President Dennis Lockhart said on Monday that US economic growth could surpass expectations this year, but an anemic labor market requires ongoing support from monetary policy.
The US also faces downside risks to its economy if US$85 billion in government-wide “sequestration” spending cuts go ahead on March 1.
US benchmark Standard & Poor’s 500 Index suffered its worst one-day percentage decline since Nov. 7 last year on Monday as investors sought safety, pushing benchmark US Treasury yields down to a one-month low and lifting gold about 1 percent higher.