Hong Kong: Bleak economic data globally and a deepening banking crisis in the United States knocked Asian shares to a five-week low on Thursday, while safe-haven government bonds benefited from renewed market jitters.
Shares in Bank of America Corp and Citigroup Inc, two of America’s largest banks, sank on Wednesday and investors questioned whether the firms have enough capital to cover losses from toxic assets and a weak global economy.
Falls were severe in some Asian stock markets: key indexes in Japan, South Korea, Australia and Taiwan dropped more than 3% each. Japanese government bond futures rose to their highest in four months.
The increase in risk aversion comes despite efforts by policy makers to counter the downturn by cutting interest rates and increasing spending.
The European Central Bank meets later in the day and is expected to slash interest rates. But there is considerable uncertainty about how deep a cut to expect and this helped send the euro to multi-week lows on Wednesday.
“The problems are global and there isn’t any real good news around,” said Martin Angel, a dealer at Patersons Securities Ltd. in Australia. ”You are just not going to escape it,” he added.
The MSCI index of Asia-Pacific stocks outside Japan fell 2.4%, having hit its lowest in just over five weeks.
That brings the index down about 6% for the year, though it still remains about 20% above a five-year low struck in November.
Data on Wednesday showed US retail sales dropped a steep 2.7% in December, a bad signal for global exporters that have come to rely on the spending by US consumers.
Indicators in the region also show signs of trouble, with a report on Thursday showing core Japanese private-sector machinery orders fell a record 16.2% in November.
Economic growth in the region is under threat. A South Korean finance ministry official on Thursday said growth could fall below the central bank’s forecast of 2%. Private-sector researchers are forecasting a contraction.
The yen dipped against the euro and dollar though the retreat was cushioned by investor risk aversion. The yen tends to gain in volatile times as investors unwind trades in which they borrow the low-yielding Japanese currencies to invest in riskier assets.
The dollar inched up 0.1% to 89.16 yen from late US trade on Wednesday.
On top of the economic concerns, woes at global financial firms look set to continue into the new year.
Citigroup shares tumbled on Wednesday on worries about its plan to shrink by about one-third, while HSBC hit a seven-year low as analysts said it may halve its dividend and raise up to $30 billion in a rights issue.
Bank of America Corp is close to receiving billions of dollars of support from the US government as it tries to digest Merrill Lynch, the investment bank and brokerage it bought on 1 January.
Investors are also having to contend with potential credit ratings actions for countries seeing deteriorating finances.
Standard & Poor’s cut its rating on Greece’s sovereign rating on Wednesday citing the rising public deficit and deteriorating economic outlook, helping send the euro to one-month lows against the dollar and a six-week trough versus the yen.
The euro had recovered some ground as Asia trade started, rising 0.1% to 117.55 yen and holding steady around $1.3190 .
The ECB meets later in the day with expectations varying from a quarter-point reduction of the current 2.5% benchmark rates to a half-point move or more. Some economists expect no move at all.
General uncertainty in financial markets was reflected in a rally in government bonds.