World markets on edge after worst turmoil in four years

Friday, 17 October 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Global markets showed some signs of stabilisation on Thursday after their most turbulent day in four years, but worries about world growth and the end of years of US stimulus kept investors in a fraught mood. European stocks bounced 1% as the region’s bourses opened after Wednesday’s 3.2% plunge, but fell back into the red soon after on concerns about a bond market sell-off in the debt of peripheral euro zone countries. In the currency markets, the US dollar started to slip again after one of its sharpest drops of the year while the safe-haven Japanese yen and gold both held on to most of their gains, leaving them near their highest in a month. “Markets are likely to be picking up the pieces today and trying to work out where we go from here,” said Rabobank strategist Michael Every. “In Europe we only have final September CPI, but in the US there are initial claims, industrial production, the Philly Fed, and the NAHB housing survey. To say that the market’s patience for weaker-than-expected reports will be limited is an understatement.” Assets which depend on economic growth, such as shares and oil, have been hit by a raft of weak indicators from Europe at a time when other big economies, including China, Japan and Brazil face their own hardships. These come as the US Federal Reserve prepares to wind down later this month the asset purchase programme that has boosted markets over the past two years. Many observers doubt new measures from the European Central Bank will make up for it. The borrowing costs of some of the euro zone’s most highly indebted southern states climbed again on Thursday. Markets have also been rattled by fears the fragile government in Greece, one of the countries at the centre of the region’s debt crisis, could fall. Greek 10-year bond yields edged up 9 bps again to 7.94 on Thursday after their biggest two-day sell off since October 2008. One of Greece’s euro partners told Reuters late on Wednesday that Athens was changing its mind about quitting its EU/IMF aid programme next year, while a source said on Thursday the ECB would make it easier for Greek banks to tap its cheap funding. Portuguese, Spanish and Italian 10-year yields rose too, edging up 5 bps to 3.36, 2.45 and 2.15% respectively and pulling further away from Germany’s benchmark Bunds which hovered at 0.78%.

US gloom

Wednesday’s turmoil had sparked a safe-haven rally in US Treasuries and pushed the yield on the benchmark 10-year note as low as 1.865%, its lowest since May 2013. It last stood at 2.08% in Europe. Only a month ago, markets were thinking the Federal Reserve could hike US rates as early as June next year, but after a stormy last few weeks traders have pushed back their expectations until the first quarter of 2016. Wall Street stocks have been slammed too. The benchmark S&P 500 as well as MSCI 45-country world index has lost almost 10% in the last three weeks. US stocks are still up 170% since the depths of the financial crisis in 2009 though. The dollar’s index against a basket of six major currencies stood at 84.967, down about 0.2% on the day and near levels last plumbed in September. “For those who were looking to buy the dollar, this was a very healthy correction,” said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. As European trading gathered pace, however, it was starting to backslide again and was last at 105.87 yen having been as high as 106.32 in Asia. The euro hovered at $ 1.2815 after rising as high as $ 1.2885 overnight, its highest level since last month. The dollar’s sharp fall overnight lent modest support to battered oil prices but they were back down at new 4-year lows in London.

Japan shares lead Asia lower, dollar index slumps

Reuters: Asian shares were off session lows but still nursed losses amid a sell-off in global equities on Thursday, as heightened concerns about world economic growth pressured US Treasury yields and curtailed the dollar’s recent rally. European trading was seen starting on a modestly stronger footing after the FTSEurofirst 300 shed 3.2% to mark its biggest one-day slide in almost four years. “Ahead of European trade, we are calling the major bourses mildly firmer with a bit of a recovery after yesterday’s sharp sell-off,” IG market strategist Stan Shamu wrote in a note. MSCI’s broadest index of Asia-Pacific shares outside Japan was down about 0.3% in late afternoon trade. Shanghai shares .SSEC bucked the downtrend and added 0.1% after Chinese bank lending data provided a regional bright spot. Lending beat expectations last month, a sign that demand for credit may be picking up, though a drop in China’s foreign exchange reserves in the third quarter suggested ominous speculative money outflows. Japan’s Nikkei stock average tumbled 2.2% and touched a 4-1/2-month low, though it, too, pulled away from session lows as the dollar retook some ground lost to the yen. The S&P 500 briefly turned negative for the year on Wednesday, though S&P 500 e-mini futures added 0.4%, which might portend a more stable day ahead on Wall Street as investors await more US data. September industrial output and weekly jobless claims will be released later on Thursday and could paint a brighter picture than downbeat figures released in the previous session, which came after a recent spate of weak figures from China and Europe that raised fears about the health of the global economy. US retail sales and producer prices both dropped last month, a worrisome economic signal that helped fuel a sell-off on Wall Street as it quashed expectations the US Federal Reserve would raise US interest rates sooner rather than later. The New York Fed’s Empire State general business conditions index also plunged to 6.17 in October from September’s 27.54, marking the weakest pace of manufacturing activity in New York State since April. The grim mood sparked a safe-haven rally in US Treasuries and pushed the yield on the benchmark 10-year note US10YT=RR as low as 1.865%, its deepest nadir since May 2013. It last stood at 2.093% in Asian trade. The rally carried over to the Japanese government bond market, where the yield on the 10-year JGB JP10YTN=JBTC fell as low as a 1-1/2-year trough of 0.470%. Only a month ago, fed funds futures had suggested traders priced in almost a 50% chance of a Fed rate increase as early as June 2015. But a jump in short-term US interest rate futures on Wednesday implied traders anticipate the US Central Bank would not move away from its near zero rate stance until the end of the first quarter in 2016. The dollar’s index against a basket of six major currencies =USD stood at 85.068, down about 0.1% on the day and wallowing near levels last plumbed in September. Speculation of higher US interest rates had pushed the index to a four-year high of 86.746 earlier this month. Against the yen, the dollar took back some lost ground, adding about 0.3% on the day to 106.20 yen JPY=, after dropping to a more than one-month low around 105.20 on Wednesday. The euro EUR= slumped to $ 1.2792 after rising as high as $ 1.2885 overnight, its highest level since last month. “For those who were looking to buy the dollar, this was a very healthy correction,” said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. The dollar’s sharp fall overnight lent modest support to oil prices; with US crude futures CLc1 ending just 6 cents lower at $ 81.78 on Wednesday. But the contract plunged 1.7% in Asian trade to $ 80.43, while Brent crude LCOc1 shed 1.1% to $ 82.72. Spot gold XAU= was steady at $ 1,239.60 an ounce, not far from a one-month high of $ 1,249.30 on Wednesday. London copper CMCU3 added about 0.3% to $ 6,656.25 a metric ton (1.1023 ton) after shedding 2.3% the previous session, its biggest daily drop since March.