The euro hit a 20-month low Monday and most Asian stocks retreated as a fresh wave of uncertainty hit markets after Italy’s prime minister resigned following a heavy referendum defeat.
Analysts warned the single currency could soon hit parity with the dollar because 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 of 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.
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 $1.0506 at one point, its weakest since March last year, before it edged 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 turmoil.
The New Zealand dollar was off 0.5 percent against the greenback after the country’s Prime Minister John Key made a shock announcement that he was to resign.
– Hong Kong-Shenzhen link –
Commenting on Italy’s referendum, Nomura’s Ikeda said the result was less of a surprise than the Brexit vote or Trump’s election victory.
“As Prime Minister Renzi has now resigned, some investors might think all the bad news is out now.”
The result also sent the yield on Italy’s 10-year government bonds surging to 2.027 percent from 1.902 percent Friday as traders shift out of the country.
Regional equity investors turned negative after a recent run-up fuelled by Trump’s win, which many say could lead to stronger growth in the world’s top economy.
Tokyo ended down 0.8 percent, while Shanghai slipped 1.2 percent, Sydney eased 0.8 percent and Seoul was 0.4 percent lower.
“There’s a sense of fatigue from investors who have had a busy month after the US election, OPEC meeting and now Italian referendum,” said Gary Huxtable, client adviser at Atlantic Pacific Securities, in a note.
“It looks like markets are taking a bit of a breather before the focus shifts to next week’s US Federal Reserve meeting.”
Hong Kong was down 0.3 percent. Shenzhen’s Composite Index, which tracks stocks on China’s second exchange, closed off 0.8 percent as worries over Italy overshadowed the start of an exchange link-up with Hong Kong. Wellington slipped 0.7 percent.
The tie-up, similar to one 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 rises.
Dealers are also watching the US Federal Reserve after data showed another solid rise in US jobs created in November. This will strengthen expectations it will raise interest rates this month and through next year.
Oil prices sagged after last week’s surge in response to an agreement between OPEC and Russia to cut output from next month.
In early European trade Milan’s benchmark FTSE MIB index dived more than two percent, while Frankfurt shed 0.2 percent and Paris lost 0.5 percent. London eased 0.4 percent.
– Key figures around 0800 GMT –
Tokyo – Nikkei 225: DOWN 0.8 percent at 18,274.99 (close)
Hong Kong – Hang Seng: DOWN 0.3 percent at 22505.55 (close)
Shenzhen – Composite: DOWN 0.8 percent at 2,068.17 (close)
Shanghai – Composite: DOWN 1.2 percent at 3,204.71 (close)
London – FTSE 100: DOWN 0.4 percent at 6,704.88
Euro/dollar: DOWN at $1.0570 from $1.0670 Friday
Dollar/yen: UP at 113.90 yen from 113.51 yen
Pound/dollar: DOWN at $1.2698 from $1.2734
Oil – West Texas Intermediate: DOWN 40 cents at $51.28 per barrel
Oil – Brent North Sea: DOWN 38 cents at $54.08
New York – Dow: DOWN 0.1 percent at 19,170.42 (close)