Singapore: Asian stocks fell on Wednesday and the euro wobbled near four-year lows after Fitch Ratings said the UK faced a “formidable” fiscal challenge, fueling concerns that Europe’s sovereign debt problems could stifle the global economic recovery.
Adding to the uncertainty, US Federal Reserve officials on Tuesday gave conflicting signals on the direction of interest rates, highlighting an increasingly important split within the central bank as the US economy shows signs of slowing.
Investors were also awaiting a European Central Bank meeting later in the day to see if it will announce fresh steps to ease strains from the euro zone’s debt crisis.
The ECB could offer extra funds to banks and will be pressed at a news conference for details of its surprise government bond-buying program.
It is also expected to publish a new set of economic forecasts for the region which are likely to signal somewhat stronger activity despite worries that debt problems and government austerity measures will sharply brake growth.
Solving the debt crisis implies heavy budget cuts at a time when many analysts believe spending is needed to help keep the global recovery on track.
Risk-averse investors have streamed into gold, sending prices for the precious metal to a record dollar high, on persistent fears that the euro zone debt problems will spread. “Markets hate uncertainty and at the moment you’ve got a lot of it,” said Peter Wright, a dealer at Burrell & Co in Australia.
Japan’s benchmark Nikkei fell 1%, spiraling toward a six-month low as worries the global recovery was losing steam and as a stronger yen hurt major exporters such as Sony Corp, which fell nearly 2%.
The Nikkei’s relative strength index has fallen to around 34, nearing the 30 level which indicates conditions are oversold. But rebounds in recent weeks have proved short-lived as wary investors quickly take profits on any rallies.
Stocks elsewhere in Asia also retreated, with the MSCI ex-Japan index giving up early gains to stand 0.2% lower by late morning.
Hong Kong’s Hang Seng index flitted in and out of negative territory, while South Korea’s KOSPI fell 0.5%, led by financials.
European shares fell on Tuesday, hitting a near two-week closing low, after Fitch said Britain faced a “formidable” challenge to cut government borrowing and needs more ambitious plans to reduce the deficit over the medium term.
US stocks rose up to 1.3% in volatile trade overnight, but investors shied away from larger companies which have significant exposure to Europe.
The euro slipped to $1.1945 down 0.3% from New York trading levels but above Monday’s four-year low of $1.1876. Against the yen, it fell 0.5% from late U.S. levels to 109.05 yen after gaining 0.5% on Tuesday.
“The euro decline isn’t over,” said Marc Chandler, senior strategist at Brown Brothers Harriman in New York. “What we’re seeing now is a brief respite. A rise above $1.20 would be a good chance to sell.”
The pound fell after Fitch urged Britain to cut its deficit, the latest in a series of concerns expressed by rating agencies about the state of government finances in Europe.
The warning followed credit downgrades of Greece, Spain and Portugal in recent months, and fresh worries this week about Hungary’s ballooning deficit and banks’ exposure to Eastern Europe as a whole.
Gold firmed, hovering within sight of a record above $1,250 an ounce struck the previous day, as investors looked for safe havens from months of market turmoil.
“It is mainly the fear of another slide into recession which is seeing demand for gold as a safe haven,” said Commerzbank analyst Daniel Briesemann.
Valuations of global equities have come down quickly in the last several weeks, but analysts appear divided over whether the market is bottoming out.
The uncertain global economic outlook could have an impact on earnings forecasts, though economists as a whole have not changed their growth predictions in a big way.
Asian investors are awaiting a flurry of data from China this week after reports last month indicated growth may have peaked in the world’s third-largest economy.
Though the number of property sales in big Chinese cities is decreasing, likely pointing to an easing in price pressures, other indicators do not reflect a massive slowdown in the world’s fastest growing economy or its demand for imported goods.
US crude oil futures prices rose 50 cents or 0.7% to $72.49 a barrel after industry data showed US crude inventories fell more than expected last week.