Asia: Euro hit by Italy worries as markets fall

[HONG KONG] The euro sank to a 20-month low on Monday and most Asian stocks also retreated as a fresh wave of uncertainty washed across markets after Italy's prime minister resigned following a heavy referendum defeat.

Analysts warned the single currency could soon hit parity with the dollar as investors are spooked by a long-running banking crisis in Italy and the possibility of elections that could usher in anti-EU parties.

Matteo Renzi stood by his promise to resign after his attempt to change the constitution was overwhelmingly rejected in Sunday's poll, leading to fears about the future of one the eurozone's biggest economies.

"His defeat in the face of populist moves will spawn concerns over the rest of Europe," said Yunosuke Ikeda, chief currency strategist at Nomura Securities in Tokyo.

The vote comes as anti-establishment, populist movements are gaining ground globally, fanning worries about the world order. Last month, Donald Trump won the US election and in June Britain voted to leave the European Union.

Yannick Naud, head of fixed income at Banque Audi (Suisse) SA in Geneva, told Bloomberg News: "There is now a possibility of the euro reaching parity to the dollar. Maybe not right away, but it is a possibility if there is certainty regarding new elections."

The news sent the euro tumbling to US$1.0506 at one point, its weakest mark since March last year, before edging back up slightly.

The dollar also fell to 112.88 yen from 113.51 yen in New York Friday before recovering. The yen is considered a safe bet in times of crisis and turmoil.

However, Nomura's Ikeda added: "But given the fact that this had been predicted beforehand, it's not a surprise in the same way as the Brexit vote or (Donald) Trump's election victory.

"As Prime Minister Renzi has now resigned, some investors might think all the bad news is out now."

Regional equity investors turned negative after a recent run-up fuelled by Mr Trump's win, which many say could lead to stronger growth in the world's top economy.

Tokyo was down 0.5 per cent, while Shanghai slipped 0.8 per cent, Sydney also eased 0.8 per cent and Seoul was 0.1 per cent lower.

Hong Kong shed 0.2 per cent and Shenzhen's Composite Index, which tracks stocks on China's second exchange, lost 0.6 per cent as the worries over Italy overshadowed the start of an exchange link-up.

The tie-up, similar to one that kicked off between Hong Kong and Shanghai two years ago, is being touted as the latest effort by Beijing to prove to global investors that its capital markets are gradually opening.

But analysts sounded a note of caution pointing to a China slowdown, the weak yuan and expected US rate hikes.

Dealers are also keeping an eye on the US Federal Reserve after data showed the US saw another solid rise in jobs created in November, which will strengthen expectations it will hike interest rates this month and through next year.

Oil prices sagged after last week's surge in response to an agreement between key producers Opec and Russia to cut output from next month. The surprise deal on Wednesday sent crude flying around 15 per cent last week.

AFP