Asia shares buckle beneath global growth woes
(Reuters) - Asian stocks slid on
Wednesday as worries about waning global growth lifted safe-haven bonds and the
yen, while shoving oil prices to their lowest in more than two years.
Government bonds were in big demand as
investors wagered global inflation would continue to slow and even put off the
day when U.S. interest rates might rise.
Minutes of the Federal Reserve's last policy meeting
are due later in the session and markets will be acutely sensitive to how the
debate between hawks and doves on the committee was playing out.
In Asia, Japan's Topix .TOPX shed
1.6 percent while the Nikkei.N225 dropped
1.4 percent.
MSCI's broadest index of Asia-Pacific shares outside
Japan .MIAPJ0000PUS fell 0.4 percent, while Australia's main index .AXJO lost
1.1 percent.
Dealers were now waiting anxiously to see how China's markets react as they return from a week-long
break. China also has the only major piece of economic news in the region with
the release of the HSBC PMI for the services sector.
Traders will be hoping the figures are better than
Tuesday's dismal selection. German industrial output fell 4.0 percent in the
biggest decline since the height of the financial crisis, piling yet more
pressure on the European Central Bank to be more urgent in its actions.
At the same time, the IMF shaved its global growth
forecast to 3.3 percent for this year, from 3.4 percent, warning of weakness in
core euro zone countries, Japan and big emerging
markets such as Brazil.
"Weak numbers like the German production report
fuel concern that ECB stimulus will be inadequate given the gloomier
news," said Westpac analyst James Shugg.
"With the IMF waving its knife at its global
growth forecasts, U.S. markets couldn't avoid the downdraft either."
The Dow .DJI fell
1.6 percent, while the S&P 500 .SPX lost
1.51 percent and the Nasdaq.IXIC 1.56
percent. The pan-European FTSEurofirst 300 .FTEU3 also
shed 1.5 percent.
The small-cap Russell 2000 .TOY ended near a one-year
low as investors reined in riskier bets ahead of this week's start of
third-quarter earnings reports.
WHAT INFLATION?
Inflation
swaps for the euro zone,
which essentially show what investors think inflation will average over the
next five years, have been in precipitous decline, touching an historic low of
1.89 percent this week EUIL5YF5Y=R.
This
is one of ECB President Mario Draghi's favored measures of inflation and its
decline was a major reason the central bank launched a fresh stimulus package
last month.
But
the downdraft in inflation expectations is hardly confined to Europe. The U.S.
swaps rate has sunk to 2.62 percent USIL5YF5Y=R, from 2.88 percent in August,
even as the run of U.S. economic data has been generally encouraging.
Likewise,
longer-dated U.S. Treasury yields have fallen noticeably as investors price in
low inflation for longer.
Yields
on 30-year bonds US30YT=RR are now at their lowest since May 2013 at 3.05
percent, while their premium over two-year yields shrank to the smallest since
late 2012.
Futures contracts predicting the course of the Fed funds rate
<0#FF:> have rallied hard in recent days as the market pushed out the
date for the first hike.
They
now show less than 50 basis points of tightening for 2015 and all of it in the
second half of the year.
The
fall in U.S. yields dragged the dollar down from its recent highs. The dollar
index .DXY eased to 85.569, off a four-year peak of 86.746 hit on Friday.
The
dollar slid to a three-week low of 107.76 yen JPY=, further recoiling from a six-year
high of 110.09 set a week ago. The euro edged up to $1.2677 EUR=, and away from a two-year trough near
$1.2500.
Commodities were under pressure as global demand fell short of
supply. Brent crude oil LCOc1 fell 31 cents to $91.80 a
barrel. It hit $91.25 on Monday, the lowest since June 2012.
U.S.
November crude CLc1 eased another 27 cents to $88.58 a barrel, uncomfortably
close to its recent trough of $88.18.
(Editing by Jacqueline Wong)
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