Greece: Australian and NZ market response

Australia: $75b wiped off as investors grapple with crisis in Greece

MORE than $75 billion has been wiped off the value of Australian shares this month, as investors fret over how a breakup in the eurozone would harm the world economy.

SMH,

17 May, 2012

The sharemarket plunged 2.4 per cent to a two-month low yesterday, and has now fallen 5.6 per cent in May, after crisis talks to form a coalition government in Greece broke down.

Greece now faces a new election next month, widely seen as a referendum on whether to abandon the euro.

The news sent shockwaves around the world, with the Australian dollar falling to a new five-month low of below US99¢, and European shares continuing to tumble last night.

The chief currency strategist at Westpac, Robert Rennie, said investors were grappling with just how difficult it would be for Greece to quit the eurozone.

''To me, it feels like the beginning of the end for Europe. I think we are just beginning to take that on board,'' Mr Rennie said.

In Australia, miners bore the brunt of fears that China is also slowing, with BHP Billiton stocks slumping to a new three-year low.

The plunge came as new figures showed household confidence barely budged this month, despite a hefty cut in interest rates and new cash payments for low and middle income earners in the federal budget.

The Westpac Melbourne Institute consumer sentiment index rose by 0.8 per cent to 95.3 points, after the major banks failed to pass on the full 0.5 percentage point cut in official interest rates.

Only 9.9 per cent of people thought they were better off after Labor's budget, the survey said, with 36 per cent of people thinking the budget would cause them financial pain.

The chief economist at Westpac, Bill Evans, said previous budgets have also been greeted with scepticism by consumers, but the modest rise in confidence would be a ''disappointment'' for the Reserve Bank.

''It seems extraordinary that the index is 2.0 per cent below its level in October last year when the official cash rate was 4.75 per cent - a full 1 per cent above the current level,'' Mr Evans said.

Compounding the gloom on financial markets, there are growing fears of slowing in Australia's biggest trading partner - China.

The manager of corporate banking at Foster Stockbroking, Kevin Massey, said investors had been questioning the strength of the Chinese economy for weeks.

''Europe is not going to resolve itself in the short term, so I guess we're in for a … volatile time.''

Kiwi sinks further on Greek fears

The New Zealand dollar extended its losses against most major currencies overnight with investors remaining bearish on the kiwi amid ongoing uncertainty on Greece's euro zone membership.

Stuff,

17 May, 2012

The kiwi recently traded at US76.36 cents, down from US76.57c at 5pm yesterday, while on the Trade Weighted Index of major trading partners' currencies it slipped to 69.32 from 69.47.

Trading in the offshore session was marked by a general negative tone, with headlines dominated by speculation over how the global economy would handle Greece's potential exit from the euro zone, although strong leads were in short supply.

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