European Shares Jump, But Euro Dips
The euro dipped on Monday as the euphoria over last week's deal to tackle its escalating debt crisis ebbed, and weak economic data around the world fuelled concerns over the growth outlook.
Oil and other commodities also gave up some of Friday's big gains sparked by the deal to help the region's struggling banks and bond markets, as doubts over its viability grew, and as data showed factory activity slowing worldwide.
"It (the deal) is just spending more money from donor countries and receiving more money from debt-ridden countries. This will lead to political friction and is not a long-term solution," said Lutz Karpowitz, FX strategist at Commerzbank.
Finland and the Netherlands added to fears over the fragile nature of the agreement by stating they would block a key element of the deal that would have allowed the euro zone's new permanent bailout fund to buy bonds in the market.
The euro fell 0.25 percent to $1.2640, down from a one-week high of $1.2693 hit on Friday.
But the surprise that Europe's leaders had been able to make some progress on tackling their crisis continued to lift the pan-European FTSEurofirst 300 index on the first trading day of the new quarter.
The index was up 0.8 percent at 1,029.67 points, having surged 2.6 percent on Friday in its biggest daily gain for seven months on the back of the policy moves agreed at the European summit.
Friday's leaders' summit agreed to inject funds from a new permanent bailout fund, the European Stability Mechanism (ESM), directly into struggling banks from next year after the creation of a single region-wide banking supervisor.
It was also decided the new fund could intervene in bond markets to support troubled member states, though the size of the fund was not increased.
Spanish and Italian bond yields, seen as most likely to gain from the deal, fell again on Monday, though they remain at elevated levels.
Ten-year Spanish yields were down 10 basis points (bps) at 6.24 percent and two-year yields were down 28 bps at 4.13 percent.
Italian 10-year yields fell 12 basis points to 5.70 percent, while two-year yields dropped 29 basis points to 3.51 percent.
Yields on the 10-year German government bond also eased, by about 3 basis points to 1.55 percent, as prices rose on lingering concerns over the sketchy detail of the deal and that the limited funds of the current bailout fund and the new ESM could be stretched.
"In theory if these funds were sufficiently capitalised there would be cause for celebration. Unfortunately, they are not sufficiently capitalised and therefore their is no cause for celebration," said Jeff Sica, president of SICA Wealth Management, which manages more than $1 billion in client assets.
ECONOMIC WOES
Fresh data showing how the region's crisis is effecting trade around the world also weighed on investors.
Euro zone factory activity took another blow in June, and a survey showed corporations were preparing for worse to come, while a separate jobs report showed unemployment rising fast.
The Euro Zone Manufacturing Purchasing Managers' Index (PMI) was unchanged at 45.1 in June, above the preliminary reading of 44.8 but still the lowest reading since June 2009.
The index, stuck for almost a year below the 50 mark that divides growth and contraction, showed factories in the region's two biggest economies, Germany and France, are succumbing to a downturn that started in southern Europe.
"Companies are clearly preparing for worse to come, cutting back on both staff numbers and stocks of raw materials at the fastest rates for two-and-a-half years," said Chris Williamson, chief economist at data provider Markit.
Earlier purchasing managers surveys from the major Asian exporting nations of China, Japan, South Korea and Taiwan all showed a similar slowdown in factory activity for June as demand for export goods from Europe and the United States was weaker than expected.
The gloomy data added to expectations the European Central Banks will cut interest rates on Thursday, which the latest Reuters poll indicates will be a 25 basis point cut to 0.75 percent.
The weak factory data and renewed worries over the euro zone crisis also pressured oil, sending Brent crude down $1.88 a barrel to a low of $95.92, before recovering to around $96.10.
Spot gold edged down 0.3 percent to $1,591.64 an ounce.