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Global Markets: Asia shares swoon to 19-month lows; investors await U.S. data

Reuters  |  SYDNEY/SHANGHAI 

By and Andrew Galbraith

SYDNEY/(Reuters) - Share markets in plunged to a 19-month low on Thursday after Wall Street's worst losses in eight months led to broader risk aversion, a rise in market volatility gauges and concerns over overvalued stock markets in an environment of rapidly rising dollar yields.

MSCI's broadest index of shares outside was off 3.8 percent around 0500 GMT, and earlier touched its lowest level since March 2017.

Markets in are seen as unlikely to stem the bleeding, with financial spreadbetters expecting London's FTSE to open 1.4 percent lower at 7,047, Frankfurt's DAX to open down 1.8 percent at 11,501 and Paris' CAC to open down 2.1 percent at 5,096.

The sell-off, which came as the of the International Monetary Fund, Christine Lagarde, said stock market valuations have been "extremely high", erased hundreds of billions of dollars of wealth around the region.

"Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty," summed up analysts at

Japan's Nikkei ended down 3.9 percent its steepest daily drop since March, while the broader lost around $207 billion in market value, falling 3.5 percent.

shares dropped 4.9 percent, on track for their worst day since February 2016, to their lowest level since late 2014, while blue chips slid 4.4 percent.

Shares in were among the region's worst-hit, with the broader index losing 6.3 percent. Seoul's index was down 3.8 percent.

"We can't see where the bottom point will be," said Chien Bor-yi, an at Taipei-based

"Further short-term equity pain may well be unavoidable in as foreigners are selling, but market is holding up," said Peter Park, of at South Korea's

Sinking global shares have raised the stakes for U.S. figures due later on Thursday as a high outcome would only stoke speculation of more aggressive rate hikes from the Federal Reserve.

"We're all just watching the We're all watching the U.S. economy, we're worrying about an spike or a wages spike that will come through," said Rob Carnell, chief economist and of research at ING in

But he said that he expected the data to show peaking rather than moving sharply higher, which "could restore a little bit of calm."

On Wall Street, the S&P500's sharpest one-day fall since February wiped out around $850 billion of wealth as tumbled on fears of slowing demand.

The ended Wednesday with a loss of 3.29 percent and the 4.08 percent, while the Dow shed 2.2 percent.

The blood letting was bad enough to attract the attention of U.S. Donald Trump, who pointed an accusing finger at the for raising interest rates.

"I really disagree with what the is doing," Trump told reporters before a political rally in "I think the Fed has gone crazy."

It was hawkish commentary from Fed policymakers that triggered the sudden sell off in Treasuries last week and sent long-term yields to their highest in seven years.

The surge made stocks look less attractive compared to bonds while also threatening to curb economic activity and profits.

"The rise in Treasury yields has been the primary catalyst for the sell-off in equities, since higher yields suggest a lower present value of future dividend streams, assuming an unchanged economic outlook," said Steven Friedman, at

"It is also possible that equity investors are growing concerned that the Federal Reserve's projected rate path will choke off the expansion."

YUAN A FLASHPOINT

The shift in yields is also sucking funds out of emerging markets, putting particular pressure on the Chinese yuan as fights a protracted trade battle with the

On Thursday, the of the said he is very concerned about trade tensions and warned of a "clear" global economic slowdown if tariff threats escalate.

has suspended approvals for an in and has asked license holders such as and to be "low profile" in marketing it, as concerns rise in over possible outflow pressures.

China's has been allowing the yuan to gradually decline, breaking the psychological 6.9000 barrier and leading speculators to push the dollar up to 6.9377 at 0602 GMT.

The onshore yuan was trading at 6.9305 per dollar at 0606 GMT, 65 pips weaker than the onshore close of 6.9240 Wednesday.

China's move has forced other emerging market currencies to weaken to stay competitive, and drawn the ire of the which sees it as an unfair devaluation.

"The yuan has already weakened significantly, to offset the tariffs announced so far," said Alan Ruskin, Deutsche's "Further weakness could exacerbate concerns of a self-fulfilling flight of capital, and a loss of control."

There was also a danger for the U.S. if had to intervene heavily to support the yuan as it could lead to selling U.S. Treasuries, he added.

The dollar was already losing ground to both the yen and the euro, as investors favoured currencies of countries that boasted large current account surpluses.

The euro was at $1.1550, up from a low of $1.1429 early in the week. The dollar lapsed to 112.17 yen, a telling retreat from last week's 114.54 peak.

That left the dollar at 95.263 against a basket of currencies.

In commodity markets, gold struggled to get any safety bid and edged down to $1,192.77.

skidded in line with U.S. equity markets, even though worried about shrinking Iranian supply from U.S. sanctions and kept an eye on Hurricane Michael, which closed some U.S.

Brent crude fell 1.6 percent to $81.75 a barrel, while U.S. crude dropped 1.5 percent to $72.07.

(Additional reporting by in and Cynthia Kim in SEOUL; Editing by & Simon Cameron-Moore)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, October 11 2018. 12:13 IST
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