Asian shares fall as deepening Greek turmoil weighs

Reuters: Asian shares fell on Monday after weekend talks to form a new Greek government failed and China’s latest move to loosen monetary policy highlighted concerns its economy is faltering, prompting investors to further trim their exposure to risk.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell as much as 0.6 percent to its lowest in nearly four months, after shedding more than 1 percent on Friday for its biggest weekly loss since late November.

Japan’s Nikkei share average gave up early gains to stand nearly flat at midday.

Data on Friday from the Commodity Futures Trading Commission showed hedge funds and other money managers slashed their long positions on commodities by 20 percent, or nearly $18 billion, as prices fell to four-month lows last week, with oil accounting for the bulk of the drop.

“It’s risk-off everywhere you look,” said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo.

The materials sector was the biggest decliner in MSCI’s pan-Asian stock index, falling 0.8 percent.

U.S. crude prices slipped 0.7 percent to $95.42, weighed down by China’s slowing economy, which clouded the demand outlook, and Saudi Arabia’s call for higher oil stock levels. Brent crude eased 0.3 percent to $111.93 a barrel.

The euro fell to its lowest in nearly four months at $1.2878 and the Australian dollar fell below parity to a five-month low, dropping as far as $0.9996.

Risk aversion will likely benefit the dollar and the yen and keep the dollar/yen pair in tight ranges, but weigh on dollar and yen cross-pairs.

Further undermining market sentiment was a $2 billion trading loss by JPMorgan Chase & Co (JPM.N), the largest U.S. bank by assets, which raised fresh worries about the financial sector, pushing Wall Street’s KBW bank index down 1.2 percent on Friday. Fitch Ratings cut JPMorgan’s credit rating one notch and Standard & Poor’s revised its outlook on JPMorgan to “negative.”

“Currencies may hold steady having hit the lows earlier, but remain vulnerable to headlines out of Europe, while JPMorgan’s news could spur speculation about tighter financial regulations and prompt investors to reduce risk assets,” Credit Agricole’s Saito said.

After fruitless talks on Sunday, Greek President Karolos Papoulias will continue talks with the country’s political leaders on Monday evening to try to form a government, a senior presidency official said.

The president must call a new election if a compromise is not reached, putting Athens closer on the brink of bankruptcy and possibly out of the euro bloc.

Even in Germany, anti-austerity momentum may grow after Chancellor Angela Merkel’s conservatives suffered a crushing defeat on Sunday in an election in Germany’s most populous state.

Market reaction to China’s weekend move to cut the amount of cash that banks must hold as reserves was muted, coming after a series recent weak data, with analysts seeing more policy action to support domestic demand.

“In our view, the cut was more intended to be a signal to the market that policymakers are on top of the situation,” said Societe Generale analyst Wei Yao.

“April data reconfirmed our view that the first quarter was not the bottom. We are still looking for two more 50 bp RRR (banks’ reserve requirement ratio), cuts this year, with the next one likely in June.”

China’s central bank cut the RRR by 50 basis points to 20.0 percent on Saturday, freeing an estimated 400 billion yuan for lending to head off the risk of a sudden slowdown in the world’s second-largest economy.

“With the situation in Europe going from bad to worse, the market is questioning whether a late, band-aid response from China is going to mend battered confidence,” said Park Ok-hee, an analyst at IBK Securities.

Asian credit markets were softer early on Monday, with the spread on the iTraxx Asia ex-Japan investment-grade index wider by 3 basis points.