Greece weighed heavily on investor confidence Wednesday as bank customers there began sending cash out of the country or hiding it under their beds, ignoring hints from German Chancellor Angela Merkel that a stimulus would be forthcoming if the Hellenic Republic sticks to its austerity commitments.
Asian markets took the brunt of these concerns, with the Hang Seng diving 3.1 percent despite a slight rebound after European markets opened. German and U.S. bonds yields declined further as investors flocked to those relatively safe investments. The positive news on April U.S. housing starts, which would normally push down bond prices, wasn't enough to allay Greek concerns.
Commodities struggled from a rush of investors seeking ways to protect the cash they have. Oil fell to its lowest price since November, below $93. Gold, which is sometimes considered a safe-haven investment and other times just another commodity, also declined to a 10-month low.
The economic impact in the U.S. of a European crisis stemming from a Greek exit from the euro, which markets consider increasingly likely, may not prove to be big, said Jack Ablin, chief invesment officer of Harris Private Bank in Chicago. Europe's loss is our gain, he said, mostly in manufacturing. Labor unit costs in Europe are 15 percent higher on average than they were in 2000, giving the U.S. a tremendous advantage in attracting factories.
The likelihood that Greece will leave is 100 percent, Ablin said, Greece's economy is totally out of balance. The prospect of a far more damaging exit by Spain or Italy is more remote: As long as you have the European Central Bank printing euros, I don't view the bottom falling out.
Stocks. Positive economic news from the U.S. helped counteract the worsening conditions in the euro zone, helping to put a floor under the declining Dow Jones Industrial Average, S&P 500 and Nasdaq Composite. Markets in London and Germany fell, but the CAC 40 in Paris edged up.
Bonds. U.S. Treasury yields fell after the minutes from the last Fed meeting indicated that some board members weren't exuberant about a sustained economic rebound, suggesting exceptionally low interest rates for the time being.
Currencies. The dollar has rallied for 13 days straight, the longest consecutive run in 20 years. The euro, which was hovering slightly above $1.27,was not helped by the European Central Bank's decision to stop dealing with some Greek banks until they recapitalize. The single currency's value remains well above the $1.19 low it hit on June 4, 2010. The Bank of Japan failed to find enough government securities to buy in its stimulus plan, causing the yen to slide.
Commodities. Natural gas, which has been viewed as undervalued in recent weeks, was the only fuel June delivery that increased. Palladium for May delivery shot up over 9 percent as industrial demand for the metal is expected to rise. Corn for July gained over 3 percent as China is expected to increase its demand.