Hong Kong: Asian stocks and emerging market currencies fell on Thursday, after dire US private employment data and fears about corporate earnings cooled investor willingness to take risks for higher returns.
Major European stock markets pared early losses with the pan-European FTSEurofirst 300 benchmark down 0.7% after a 3% drop in US stocks overnight.
The financial crisis of 2008 has snowballed into a global economic crisis in 2009, with consumer spending crippled, Asian exports collapsing and unemployment rising at an alarming rate.
Hopes that fiscal stimulus measures will support global growth, which fed the recent stock market rallies around the world, have been tempered by the cold, hard economic reality.
A report showed the US private sector shed 693,000 jobs in December, increasing chances the US payrolls report due on Friday will reflect greater job losses than the expected 500,000.
Stimulus aimed at infrastructure and interest rate cuts can take a long time to be fully felt, and company earnings are likely to deteriorate further in early 2009.
Japan’s Nikkei share average fell 3.9% after stringing together its longest winning streak since one that ended in April 2006.
Technology shares in particular were under fire after Intel Corp cut its fourth quarter sales forecast for the second time.
In Japan, electronic parts maker Kyocera Corp was one of the top drags on the Nikkei, sliding 6.6 percent, while Hong Kong-listed PC maker Lenovo Group sank 22% after warning of a quarterly loss and cutting jobs.
Taiwan’s tech-heavy TAIEX index fell 5.3%, its worst drop in two months, after a report on Wednesday showed a record 42% plunge in exports, spurring the central bank to cut rates unexpectedly by a half-percentage point.
The MSCI index of Asia-Pacific stocks outside Japan was down 4%. Shares in Hong Kong lost 3.8%, Singapore stocks were down nearly 3% while shares in Seoul fell 1.8%.
Expectations of even slower demand for raw materials dragged on metals prices, while US crude crawled back above $43 a barrel on escalating voilence in the Middle East after tumbling overnight.
Too early for recovery trades
Equity markets usually turn higher toward the end of negative economic cycles, as investors anticipate turning points well before they take place, sometimes six months prior. Some analysts have cited this as a reason for the strength in demand for stocks, high-grade credit and commodities.
However, the severity of this global slowdown makes seeing into the future an even more treacherous task than it usually is.
They recommended sticking with bets on further strength in government bonds, especially shorter maturities in Europe, as well as on US stocks since they will likely benefit from the one-two punch of fiscal stimulus and zero interest rates.
Emerging market currencies weakened as the global equity rally came to a halt.
Singapore and Malaysia are two economies most leveraged to demand from the developed world, according to Societe Generale economists.
The US dollar recovered against the euro and other major currencies but pinning down a trend has been difficult so early in the year. The euro was down 0.6% to $1.3566.