London: European shares plumbed fresh 5-1/2 year lows on Monday, echoing a slide in Asia prompted by a surge in the yen as investors feared a barrage of central bank support would not be enough to ward off global recession.
The yen continued to gain even after Group of Seven finance ministers on Monday singled out the excessive volatility of the currency, which sent Japanese equities to their lowest in nearly three decades.
Little that officials said could convince panicky investors that governments around the world can stem the fast-spreading crisis that has ravaged financial markets and now threatens to erode both economic growth and company earnings.
Emerging market equities fell to their lowest since September 2004, while in Western Europe, shares slid nearly 5 percent in early trade on the FTSEurorfirst 300 index, led by banking stocks and energy companies, which took a hit from a fresh drop in the price of crude oil to 17-month troughs.
The euro fell to a two-year low against the dollar and in another sign of profound risk aversion, European credit spreads hovered just shy of Friday’s record highs.
“There’s lots of volatility, not just in the equity market but in the interest rate and currency markets too,” said Neil Parker, market strategist at Royal Bank of Scotland.
“We’re going to get further big swings as the markets watch for what the authorities are going to do,” he added.
The MSCI world index of shares, which on Monday was down by more than 3%, has lost nearly 50% so far this year to reach its lowest since 2003 as investors around the globe have dumped stocks.
In Asia, Japan’s Nikkei index swung wildly throughout the session before ending down 6.4% at its lowest close since 1982 as the stronger yen hit exporters such as Canon Inc.
Japan pledged fresh measures on Monday to try to shield the world’s second-biggest economy from the financial crisis while South Korea slashed interest rates and Australia’s central bank intervened for a second day to support its tumbling currency.
The actions by Asian policy makers come days ahead of a widely expected interest rate cut of 50 basis points by the U.S. Federal Reserve on Wednesday and the U.S. advance report on third-quarter economic growth due on Thursday.
“Nobody can tell for sure where the support levels are or where the bottom is,” said Castor Pang, a strategist with Sun Hung Kai Financial in Hong Kong. “The current bear market trends point to continuous declines in the market as fund managers unload their positions in the face of increased redemptions.”
The MSCI index of Asian stocks outside Japan fell for a fourth consecutive session, losing 5.3 percent by 0830 GMT.
On Monday, the Group of Seven warned that the surging yen posed a threat to financial and economic stability, in the latest coordinated effort by the world’s richest nations to contain the worst financial crisis in 80 years.
Analysts said the G7 statement suggested authorities were getting closer to the point where they would consider intervention, possibly jointly, to stem the yen’s recent surge.
Yet the yen, after initially slipping slightly on the news, climbed towards a 13-year peak against the dollar hit on Friday, and an all-time high versus the Australian dollar as the plunge in the Nikkei overshadowed the G7 warning.
The yen has risen as investors have rushed to unwind carry trades built up over the last several years in which they borrowed the low-yielding Japanese currency to invest in higher-yielding, riskier assets and currencies.
Few expect the sinking global economy to recover quickly despite moves by central banks to cut rates, or government efforts that have so far included pledging about $4 trillion in a bid to support banks and thaw frozen credit market.
Emerging markets have been hit especially hard in the global sell-off. Several more countries are expected to turn the International Monetary Fund after Ukraine on Sunday agreed on a $16.5 billion loan package to ease the effects of the financial crisis.
The dollar fell 2.0% from late US trade last week to 92.3 yen, pulling back after rising to near 94.50 yen after the G7 warning. The euro was down about 4% at 114.24 yen, near a six-year low of 113.79 yen hit on Friday.
The Australian dollar hovered near record lows against the yen and a 5-1/2 year trough against the US dollar, even after the central bank intervened on Monday for a second day.
Mirroring global recession fears, oil fell 4% to $61.45 a barrel, near a 17-month low, while spot gold - ordinarily a perceived safe-haven investment - dropped by more than 3%, undermined by the strength in the dollar against the euro and the slide in crude oil.