Tokyo: Asian shares dived on Monday, pushing the broad Tokyo market to a 28-year low, on fears of a nightmare scenario of euro-zone breakup, US economic relapse and a sharp slowdown in China.
Tokyo’s Topix index lost as much as 2.4% to 693.26, a level not seen since late 1983, according to Reuters data, while the Nikkei average of major stocks tumbled 2%. The Nikkei last week marked its ninth straight week of losses, the longest such losing streak run in 20 years.
The MSCI’s broadest index of Asia-Pacific shares outside Japan fell by as much as 2.4% to 2012 lows, down 16% from this year’s peak, continuing a rout of global stocks sparked on Friday by weak US jobs data.
And US stock futures pointed to yet more selling when investors wake up in North America on Monday, with S&P 500 futures down 0.7% in Asian trade.
“Investors are just fleeing risk assets,” said ATI Asset Management chief investment officer Simon Burge.
“Bond yields are at an all-time low. Even in the global financial crisis we didn’t see bond yields at the levels that they have reached now ... This is a flight from risk assets that is unprecedented,” Burge said.
The benchmark 10-year Japanese government bond yield fell below 0.80% to its lowest since July 2003. Ten-year JGB futures prices jumped to a 19-month high.
US and German government bond yields had both hit record lows on Friday, with 10-year German yields dipping to 1.127% and 10-year Treasury yields touching a historic low of 1.442%.
The euro and the Australian dollar, which is closely linked to risk appetite, staged only meek recoveries on Monday from their battering on Friday when the Aussie hit eight-month lows. The yen, perceived as a safer currency in times of crisis, retreated only slightly from its highs against the dollar.
The CBOE Volatility index, which measures expected volatility in the Standard & Poor’s 500 index over the next 30 days, jumped nearly 11% to its highest since mid-December on Friday, reflecting mounting risk aversion.
Policy Responses Eyed
Analysts said the flight to bonds was expected to continue until clarity emerged on issues such as the outcome of Greek elections due on 17 June and the recapitalisation of European banks, now in the shadow of a Spanish banking crisis.
“It’s not an issue of risk-on or risk-off anymore, it’s nervousness all over until a clear direction emerges on a long-term trend,” said Hisamitsu Hara, chief foreign exchange manager at Bank of Tokyo-Mitsubishi UFJ.
US jobs growth braked sharply for a third straight month in May and the jobless rate rose for the first time in nearly a year, with 69,000 jobs added to payrolls last month, the least since May last year.
The weak data followed poor Chinese manufacturing and dismal European data on factory activity, rattling markets that had already been on edge over the deepening euro-zone crisis. The numbers fuelled speculation that the US Federal Reserve would have to launch further monetary stimulus to shore up growth.
The median forecast from 15 primary dealers, which do business directly with the Fed, showed a 50% chance that it would eventually launch another round of quantitative easing, according to Reuters’ polling.
The yen stood at ¥78.18 against the US dollar on Monday, off a 3-1/2 month high of ¥77.65 hit on Friday. It stood at 96.88 against the euro, after climbing to its highest since December 2000 of around ¥95.59 on Friday.
The euro was at $1.2396, recovering from Friday’s trough of $1.2288, its lowest in nearly two years.
“If the European situation worsens, then the global interest rate and policy solutions would require coordinated actions by the Bank of Japan and the Federal Reserve to assure access to US dollar money markets, otherwise risk a contraction in global trade,” said Richard Hastings, macro and consumer strategist at Global Hunter Securities.
Analysts are closely watching several monetary policy meetings due this week, including the European Central Bank on Wednesday and Bank of England on Thursday, for clues on their responses to vulnerable global growth.
Spot gold edged 0.3% lower to $1,620.49 an ounce on Monday, largely holding its ground after recording its biggest one-day rally in more than three years on Friday.
US crude futures fell 1.5% to $81.98 a barrel, after hitting its lowest level in almost eight months on Friday. Brent dropped 1.4% to $97.08.
Worries about slowing global growth also pushed Shanghai copper down more than 3% to a new 2012 low of around 52,450 yuan ($8,200) a tonne.
Heightened risk aversion pushed up the cost of insuring against corporate and sovereign defaults in Asia, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 13 basis points.