Morning market wrap: sharp falls in Europe, North America

Financial markets in North America and Europe fell sharply overnight after the release of a report confirming Europe’s economy is contracting, teamed with growing concerns about the prospect of a possible Greek bond-swap failure looming on Thursday. Oil prices, the US dollar and the Australian dollar all fell – all signs of retreat for a market spooked by growing uncertainty.

“Investors typically dislike uncertainty more than they dislike bad news,” Michael Koskuba of New York’s Victory Capital told Bloomberg. “There’s concern about whether or not there will be enough participants in the Greek debt swap. The fear is that if it doesn’t happen the way most want it to happen, there’s potential for a greater recession in Europe.”

Wall Street

On the New York Stock Exchange, the S&P500 closed down overnight (1.54% or 20.96 points to 1343.37) while the Dow Jones Industrial Average was down 1.55% or 200.52 points to 12762.29.

Technology-focused stock index the NASDAQ also closed down 1.32%, or 39.01 points, to 2911.47.

The West Texas Intermediate (WTI) oil price fell overnight and is now trading 1.80% down at US$104.80 a barrel.

Gold dropped 1.72% to USD$ 1674.90 an ounce.

The Australian dollar weakened overnight, with one Australian dollar buying $US1.0551.

Europe

UK, European and Canadian stocks all fell overnight, following Walls Street down in the biggest drop so far in 2012 amid growing concerns that rescue attempts for Greece could fail.

London’s FTSE 100 closed 1.86% down overnight, or 109.02 points to 5765.80.

Frankfurt DAX also closed down, 3.4% or 233.35 points to 6633.11.

The European blue chip Stoxx50 index closed down, 3.41% or 86.34 points to 2443.52.

One of the biggest losers was German Bank Commerzbank, which fell 9.66%, reflecting concerns about the uncertainty of the Greek bond swap on Thursday.

D-Day for Greece looms

On Thursday night more than 75% of Greece’s private creditors (insurance companies and banks) will need to sign up to a bond swap to avoid default, reducing the value of their interest in Greek bonds by about 100 billion Euros. If they do not accept the cut in book value, their interest could plummet regardless as Greece defaults. Officials are twisting the arms of some reluctant creditors.

“It’s in the interest of the private creditors as well as international stability,” French European Affairs Minister Jean Leonetti told Bloomberg.  “All private creditors know it’s better to lose a little to win a lot rather than lose a lot later and win nothing.”