The U.S. dollar slid and Tokyo’s Nikkei stock index slumped more than 3 percent to a 26-month low on Wednesday, as a record loss at financial powerhouse Citigroup and weak U.S. retail sales reignited fears of a downturn in the world’s biggest economy.
Spooked traders dumped the dollar to a record low against the Swiss franc and below 106 yen a 2-½ year low, spurring talk of an early Federal Reserve interest rate cut.
Asian investors cut positions in export-dependent firms such as Honda Motor Co Ltd and Sony Corp on fears of a U.S. recession and weakening dollar. The Nikkei closed down 3.35 percent.
Financial bookmakers in London expect Britain’s FTSE 100 index to open 20-24 points lower, with Germany’s DAX off 31-46 points and France’s CAC-40 down 22-41 points at the open.
The flight from equities lifted bond prices, pushing the yield on benchmark U.S. 10-year Treasuries to a new four year low. Futures contracts reflect a 50-50 chance of the Fed slashing interest rates by as much as three-quarters of a percentage point by the end of the month
Commodities were also winded by the U.S. recession fears. Gold retreated below $900 an ounce after failing to claim a new record above $914 on Tuesday, and crude oil fell 0.6 percent after Tuesday’s $2 drop.
The U.S. housing market turmoil and global credit crisis have roiled markets for months, but news that Citigroup Inc and rival Merrill Lynch & Co Inc raised another $20 billion of capital from investors stoked fears that there may be more bad news to come from financial institutions.
“It’s hard for anyone to buy the dollar at the moment as people are very pessimistic about the U.S. economy, haunted by the possibility of a recession there,” said a trader at a Japanese trust bank.
MSCI’s measure of Asia Pacific stocks excluding Japan was down 3.8 percent at 0700 GMT, its lowest since Sept. 18.
“The big issue that Asia will have over the next six months is that earnings expectations are way too high. Analysts as a group are way too optimistic,” said Tim Rocks, equity strategist at Macquarie Securities in Hong Kong.
“The conclusion is pretty obvious that markets overall, but particularly in key countries and sectors, are going to face a lot of pressure.”
The Australian market joined the sell-off, clocking up its eighth decline in a row – the longest run of losses since October 2000. The benchmark S&P/ASX 200 index shed 2.5 percent.
“I think it stops when people think it has gone far enough and I don’t get that sense yet,” said Sydney-based Brian Eley, a portfolio manager with Eley Griffiths Group Pty Ltd.
SELLING SPREE
Asia’s rout followed a 2.2 percent fall on the Dow Jones industrial average, triggered by a $9.83 billion quarterly loss from Citigroup and worsened by unexpectedly poor U.S. retail sales figures, reported delays to Boeing’s 787 Dreamliner jet and lacklustre quarterly results from Intel Corp
“What we are seeing is a selling climax,” said Yoshihiro Ito of Okasan Capital Management. “Concerns for the U.S. economy came to surface with weak retail sales and other data that has led to a selling spree.”
With more bank earnings on the horizon, many investors are not waiting around to find out how bad the news is.
Mizuho Financial Group, Japan’s second-biggest bank, fell nearly 9 percent after it said it would buy $1.2 billion of Merrill stock.
“The question is whether the banks will continue to announce such big writedowns in the next quarters, or they are taking one bold writedown this time. More people are fearing this is far from over,” said Rho Y.S., an analyst at Hyundai Securities.
The Korea Composite Stock Price Index fell 2.4 percent to a five-month closing low. Foreigners had sold more than 1 trillion won worth of shares on the Seoul bourse by 0604 GMT, the largest single day selling since Aug. 16.
LG Electronics Inc, the world’s fifth-biggest mobile phone maker, slumped almost 5 percent.
Shares in India, which have proved more resilient to the global gyrations, dropped 2.3 percent.
Copper prices on the London Metal Exchange the world’s largest non-ferrous metals market, fell nearly 5 percent from Tuesday’s peak, while zinc was down nearer 6 percent.
Reuters
(Additional reporting by Denny Thomas and Jeffrey Hodgson; Editing by Ian Geoghegan)
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