World markets bleed as global growth, US earnings fears spook markets

Sydney — Asian shares plunged on Thursday as hundreds of billions of dollars haemorrhaged from global markets after a rout in tech stocks inflicted the largest daily decline on Wall Street since 2011, wiping out all its gains for the year.

Stock investors have become increasingly nervous about lofty equities valuations, a likely peak in corporate earnings momentum, faster rate hikes in the US and an ongoing Sino-US trade war that threatens to hurt world growth.

MSCI’s broadest index of Asia-Pacific shares outside Japan has fallen more than 18.5% so far this year after skidding almost 2% on Thursday.

Japan’s Nikkei tumbled 3.3% to a six-month trough while Australian shares hit a more than one-year low. Tokyo’s Topix index tumbled 3%, evaporating more than $155bn in market value.

Chinese shares were in the red too with the blue-chip SSE Composite index plummeting 2.5% as fresh market-support measures by the Chinese government failed to ease investor worries about high leverage and the Sino-US trade war.

Hong Kong’s Hang Seng index sank 2.2%.

“If you’re a company and you’re in charge of a capex budget there is so much uncertainty about the next few years in terms of a trade war, in terms of Brexit,” said Jim McCafferty, head of equity research of Asia ex-Japan at Nomura.

“How, as a management team, will you decide how much capex to invest and where to invest it?”

Some analysts feel equity bears may be better off focusing outside the US, at least for now.

“The pressure points in Europe have been flagging bearish conditions for the better part of the past two months,” said James Stanley, market strategist at DailyFX.

“If there is going to be a larger equity sell-off, then markets would likely see some element of correlation amongst equity indices and picking on the particularly weak areas of the market may prove to be a more amenable approach.”

The return of the bears has already been more pronounced outside the US, according to data analysed by Reuters. In addition, a Bank of America Merrill Lynch study recently found that 58% of the 2,767 stocks in MSCI’s global index are now in bear market territory.

Weak readings on manufacturing in Europe have added to angst over world growth, as has a surprise slump in US home sales, which suggested rising mortgage rates were sapping demand for housing.

Adding to the air of tension, police intercepted suspected bombs mailed to former US President Barack Obama, Hillary Clinton and other high-profile Democrats, as well as to CNN, in what New York officials branded an act of terrorism.

The growing international pressure on Saudi Arabia over the death of journalist Jamal Khashoggi also weighed on investor sentiment.

On the trade front, disappointing forecasts from industrial bellwether Caterpillar weighed on Wall Street as the giant warned of rising costs due to US import tariffs.

“Now that markets have some element of the confirmation that tariffs are bringing actual impact to US corporates, there may be a snowflake causing the avalanche scenario as just another factor of worry that now needs to be taken into consideration,” DailyFX’s Stanley said.

The Nasdaq closed down 12.4% from its August 29 record closing high, falling 4.4% on Wednesday in its biggest one-day percentage decline since August 18 2011. In dollar terms, the Nasdaq vaporised $524bn in market capitalisation overnight.

The Dow fell 2.41% and the S&P 500 lost 3.09%.

Also weighing on sentiment, Citi lowered its global growth forecast for both 2019 and 2020 by 0.1 percentage point each to 3.2% and 3%, respectively, it said in a note Thursday, citing policy tightening by the US Federal Reserve.

Currencies

In foreign exchange markets, client participation on both spot and options was fairly light, Citi noted in a separate note.

Funds flowed to the US dollar and Treasuries and out of the euro and the British pound.

The euro shed 0.7% to $1.1397 and breached a major chart bulwark at $1.1430. It was last up 0.2% at $1.1409.

Against a basket of currencies, the dollar eased from near a nine-week peak to 96.267.

Sterling hit a seven-week trough $1.2865, having dropped 0.8% overnight. It was last a shade higher at $1.2887.

The yen got the usual safe-haven bid, with the euro skidding to a two-month low at ¥127.68. Even the high-flying dollar eased to ¥112.08.

Oil prices slipped amid concerns over global growth. Brent crude fell 52c to $75.65 a barrel, while US crude dropped 53c to $66.29.

Spot gold was a tad firmer at $1,236.76 an ounce.

Reuters