Global Stocks succumb to Growth Fears
Due to concerns about global manufacturing data and a US Ebola health scare, frightened investors opted for the safety of US bonds, the yen and gold, causing prices of stocks and oil to drop.
Worried about the European Central Bank’s monthly meeting where it is under pressure to launch an aggressive government bond purchase program to revive the euro zone’s stodgy recovery, European markets followed suit.
Following surveys on Wednesday, showing German factory activity shrinking for the first time in 15 months, the manufacturing sector barely growing in China and the United States slowing more than expected, investors went for the steady Yen and secure US bonds.
An Ebola case confirmation in the US, along with geo-political tensions in the Ukraine, Middle East and Hong Kong and China and the euro zone sapping risk, comprise a growing list of negative stories.
MSCI’s 45-country world stock index dropped to a five-month low as four consecutive days of drops left it down more than 5 percent over the past month.
Adding to that list is the Federal Reserve nearing an end to years of infusing cash into the economy, causing markets to suffer.
[.N] Japanese equities had led the selloff in Asia overnight after Wall Street dropped 1 percent. A rebound in the yen JPY= after a sudden loss of altitude for the high-flying dollar pushed Tokyo’s Nikkei .N225 down a sharp 2.1 percent to three-week lows. [.T]
TRILLION EURO QUESTION
Markets in both China and Hong Kong had been closed for public holidays but sustained civil unrest in Hong Kong is also weighing on investor confidence, although the city’s streets were calm for most of Thursday.
Although Hong Kong’s streets remained calm Thursday, civil unrest still weighs on the confidence of investors even though markets had been closed for holidays.
The global mood pushed 10-year US Treasury yields US10YT=RR to their biggest drop in over a year Wednesday, while remaining steady at 2.4 percent in European trading, as German Bunds DE10YT=TWEB stayed not far from all-time lows at 0.9 percent.
The dollar then slipped below 110 yen this week, which has not been the case since 2008. Last down 0.3 percent at 108.61 yen, it was on course for its largest drop against major currencies in over a month.
At $1.2638, the euro was a bit higher, moving away from a two year low of $1.2571 from early this week.
Traders remained focused on the European Central Bank meeting later in the session, where ECB head Mario Draghi is set to give details of a new plan to buy asset-backed securities and covered bonds to help revive the euro zone economy.
It is optimistic the plans will add a trillion euros to its balance sheet, though it has been pressured to be more aggressive due to poor demand for a new round of cheap loans last month.
Gold rose 0.5 percent to $1,219.27 XAU= an ounce amid concerns about damage limitation.
Brent crude oil LCoc1 fell below $92 a barrel to extend a three-month losing streak, weighed by China and Europe’s weak economic signals and ample global supply.
Since June, it has lost 20 percent and Saudi state producer Saudi Aramco’s cuts in official selling prices showed that the world’s largest exporter is trying to compete for crude market share.
“This is a structural change in the oil market, with Saudi Arabia explicitly stating that they are willing to compete on price,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.
“I think Brent will fall below $88 before we see the bottom of the market.”