Updated on
Summary The level of deposits at the ECB is an indicator of the reluctance of banks to lend.
Fears mounted that the eurozone crisis could hit growth around the world amid scepticism on stock markets Tuesday about last weeks pact among European leaders designed to stabilise the single currency.In a clear signal of the worldwide impact of the crisis, the International Energy Agency released a report saying the global demand for oil for this year and next would be around 200,000 barrels per day less than its last estimate.That followed another gloomy assessment from one of the big three ratings agencies, Fitch, which said that global growth would slow to 2.4 percent next year. It also trimmed its forecast for 2013 to 3.0 percent from 3.1 percent.In Fitchs assessment downside risks dominate at this current juncture, it said. In particular, financial tensions may intensify further in the eurozone.It also warned that the risk of unfavourable outcomes in the eurozone and United States was now higher.Fitch said that despite most EU countries deciding last week to tighten budgetary coordination to resolve the debt crisis, market tension remains high.The ratings agency said it expects growth in major advanced economies to slow to 1.3 percent this year, remain weak at 1.2 percent in 2012 and then nudge up to 1.9 percent in 2013.Robert Zoellick, president of the World Bank, struck a similarly downbeat note when he warned that Europes solutions to the eurozone crisis could hit growth around the world and especially in countries where EU banks are strong.Zoellick called the world financial system and economy fragile and vulnerable to slashed government spending and contracting bank lending -- likely results from Fridays EU pact on tighter fiscal discipline.“As I start to look into the end of the year and 2012, I think its a pretty dicey situation overall. And theres not much room for people to make missteps, he told CNBC television.Im not suggesting were in a doom period here. But what I can see is that a few mis-turns here or there, including over the coming weeks coming out of this European summit, could raise the risk considerably.He said the push to force EU banks to strengthen their capital bases -- many have large holdings of downgraded European sovereign and private debt -- is forcing them to rein in lending, which only further stalls growth.Underlining his point, official data showed eurozone banks deposited the biggest amount of overnight funds at the European Central Bank for more than a year on Monday.The level of deposits at the ECB is an indicator of the reluctance of banks to lend to each other on the pivotal interbank market. Such a reluctance stems from concern about the capacity of the borrower to repay the loan.In another blow, Moodys warned that it might cut the ratings of eight Spanish banks, citing both their real estate exposure and weaker ability to generate earnings.The rating agencies are firmly in charge now, said Jonathan Bristow, broker at Valbury Capital.Greece, the country which has been at the centre of the storm, was holding a second day of talks Wednesday with officials from the European Commission, the European Central Bank and the International Monetary Fund over whether it was on the right path to secure a new set of loans.IMF officials were also holding talks on Hungarys request for possible assistance following a sharp slide in its currency and a ratings downgrade to junk status.European leaders had hoped that Fridays agreement to move towards a fiscal pact, seeking to eradicate their public deficits under close EU supervision, would reassure markets nervous about their massive debts being repaid.But so far they remain unconvined with Asian markets mostly falling Tuesday, tracking losses on Wall Street.Tokyo closed down 1.17 percent, Sydney finished 1.40 percent down, while Seoul lost 1.88 percent. The Dow Jones Industrial Average fell 1.34 percent overnight in New York.European shares slid in early trading Tuesday. Londons FTSE 100 index eased 0.07 percent to 5,424.02 points, Frankfurts DAX 30 dipped 0.13 percent to 5,777.97 points and the Paris CAC 40 dropped 0.39 percent to 3,077.65.The European single currency slipped to $1.3175 from $1.3188 late in New York on Monday, when it had fallen as low as $1.3161 -- which was the lowest level since October 4.Having given a couple of days thought to the subject, investors are apparently not convinced by Germanys offer to whip fiscally recalcitrant member nations into compliance at some unspecified point in the future, said Moneycorp in its daily market brief.Chris Gore, a currency analyst at GoMarkets in Melbourne, drew a similar conclusion.Quite simply, the EU summit was a sink-or-swim moment, and judging by the ensuing price action across global risk assets, its not the all-encompassing solution the market was anticipating, he told Dow Jones Newswires.
Featured
