Asian stocks slumped 7 percent and commmodity-related currencies tumbled on Thursday as more evidence that the U.S. economy is shrinking made investors brace for a potentially deep and prolonged global recession.
Major European stock markets were expected to open as much as 3.6 percent lower, according to financial bookmakers, following sharp declines in Asia and the United States after a raft of gloomy economic data.
After toying for several days with raising their threshold for risk by buying beaten-down shares, investors were overwhelmed by fears that far-reaching consequences from such a sharp slowdown in developed economies were still unfolding.
Euphoria about a fresh change in U.S. political leadership after the election of Barack Obama was cruelly short lived as the reality set in of deteriorating market and economic conditions.
Wall Street institution Goldman Sachs Group Inc, which had early in the financial crisis profited on bets against the U.S. mortgage market, reportedly laid off 3,200 employees this week, and the Bank of England and the European Central Bank were expected to cut interest rates aggressively later on Thursday to shore up their economies.
A growing number of economists even think the Bank of England could lop off a full percentage point from borrowing costs in answer to critics who said the central bank had not done enough to save Britain from the worst financial shock in a generation.
"With the U.S. election over, the eyes of investors are turning to the economy, with a sense that nothing quick can be done to stop the global economic slide," said Hideyuki Ishiguro, a supervisor at the investment strategy department of Okasan Securities in Tokyo.
The MSCI index of Asia-Pacific stocks excluding Japan fell 7.2 percent after hitting a 3-week intraday high on Wednesday. The gauge has lost 53.7 percent so far this year, exceeding the 40.8 percent decline on the All-Country World index
Japan's Nikkei share average finished 6.5 percent lower, led by high-profile exporters like Canon Inc and Honda Motor Co that are expected to be affected the most by a steep drop in overseas demand as consumers cut back spending.
Toyota Motor Corp tumbled 10.4 percent after a newspaper reported Toyota's operating profit forecast would be less than half of last year's.
After the market close, the auto maker slashed its net profit outlook for fiscal year 2008 to 550 billion yen from 1.25 trillion yen as the global financial crisis and fears of recession cut into car sales in key markets.
Hong Kong's Hang Seng index tumbled 7.1 percent, led by a 13.3 percent decline in Cathay Pacific after the airline warned about fuel hedging losses of $360 million which would hurt 2008 results.
OF POPPED CREDIT BUBBLES
The sheer size of the burst credit bubble has made determining the economic implications difficult, and forecasts for global economic growth continued to be revised lower.
Data on Wednesday showing a sharp deterioration in the U.S. private sector jobs market and a contraction in the service sector added to the gloom.
Economists at Fitch Ratings this week lowered their predictions to reflect the biggest decline in the combined gross domestic product of Britain, the euro zone, Japan and the United States since World War II.
The euro and sterling fell against the dollar ahead of expected rate cuts in Britain and Europe, while the yen firmed against higher-yielding currencies as fear-based trades ruled.
The Australian dollar, one of the more higher-yielding currencies among developed economies, declined against the dollar and the yen on fears of a sharp global downturn and price declines in commodities it produces such as gold, crude oil and base metals.
Against the yen, the Australian dollar dropped to 65.71 yen from 67.38 yen
The euro fell to as low as $1.2838 on trading platform EBS, down more than 1 cent from the day's high of $1.2957.
The euro was down 0.8 percent against the yen at 125.85 yen partly because a fall in Asian share prices fuelled risk aversion and gave a boost to the yen.
"We remain of the view that conditions in the real economy will weaken further, and that external demand prospects for the euro zone economy are not bright," Brian Kim, currency strategist with UBS, said in a note.
Japanese government bonds climbed as equities dropped.
The 10-year JGB future rose around 0.8 point to 138.00, having rebounded heartily from 3-month lows touched late last month.
Steepening yield curves, in which the difference increases of long-dated yields over short-dated ones, were still the trend in government bond markets, especially in Britain and the euro zone Investors expect that central bankers in those areas will have to catch up with the rate cuts in the United States.
Since the bankruptcy of Lehman Brothers in mid September, the euro zone 2-year to 10-year spread has widened by 100 basis points, UK by 147 basis points and U.S. by 74 basis points. Most of the steepening was because of short-end yields tumbling as investors priced in rate cuts.
U.S. crude oil futures extended their slide, with the December contract down around 1 percent at $64.53 per barrel. Oil prices slumped 7 percent on Wednesday after a U.S. government report showed gasoline inventories growing as demand in the world's top consumer slowed further.
