Sydney: Markets started the week on a hesitant note as investor doubts on the staying power of a global economic recovery kept Asian stocks soggy and currencies subdued ahead of a much-expanded Group of Eight (G-8) meeting this week.
With risk out of favour for the moment, Japan’s Nikkei fell 1.4% and the MSCI index of shares elsewhere in Asia dropped by at least 1.5%, dragged by a near-6% plunge in India’s benchmark index, the Sensex.
India on Monday said its fiscal deficit would widen to a 16-year high as it increases spending on infrastructure and help for farmers, disappointing investors who had hoped the new government would use its strong re-election mandate to usher in a wave of pro-market reforms.
Anxious times: An investor looks at the stock price monitor in Shanghai. China last week floated the idea of discussing the dollar’s place as the sole international reserve currency, causing a brief dip in the currency. Eugene Hoshiko / AP
European shares opened weak, while US stock futures trended lower.
The air of caution kept havens like the yen and sovereign bonds supported, while pressuring commodity prices and leveraged plays. Crude oil futures touched a five-week low as they tumbled toward $64 a barrel.
Investors were still smarting from last week’s dismal US payrolls report, which put a question mark over the recovery there, and thus across the globe.
“The payrolls result doesn’t spell the end of the global sharemarket recovery,” said Craig James, chief economist at CommSec in Sydney, Australia, noting that forward-looking indicators were more encouraging.
One such indicator should be the ISM reading of the giant US services sector due later on Monday, which is expected to show a rise to 46 in June from 44 the month before.
“But what the payrolls result does signify is that the US economic recovery will be U-shaped, and very likely to be a very flat U,” said James.
Stock bulls had been hoping for something more “V”-shaped and the disappointment was clear in Thursday’s 2.9% drop in the US S&P 500.
Having skipped a session on Friday for the Independence Day holiday observance, S&P 500 stock futures were down nearly 1% in Asia.
Hong Kong shares lost 1.2% in a bout of profit-taking ahead of quarterly corporate earnings, while China shares continued their upward march despite news of Shanghai’s first major initial public offering (IPO) since last September, and unrest in Xinjiang.
Shanghai advanced 1.2% to a 13-month closing high as analysts argued the new supply of shares was not big enough to derail the market rally, while they expected riots in the remote but resource-rich northwest to be contained.
South Korean shares also ended higher, lifted by a spike in Samsung Electronics Co. on strong quarterly earnings forecasts.
Australian and Singapore shares lost more than 1% while Taiwan dipped 0.2% in thin trade.
Investors were also wary ahead of the G-8 summit in L’Aquila, Italy, on 8-10 July, which has been expanded to include China and a host of developing nations.
China last week floated the idea of discussing the dollar’s place as the sole international reserve currency, causing a brief dip in the currency.
The G-8 pushed back, however, with an official telling Reuters there was no appetite for such a momentous change.
“There is pretty broad consensus with the G-8 that this is not the time to experiment with reserve currencies, however attractive it might seem,” the official said.
China also seemed keen to reassure Washington.
Speaking to reporters in Rome on Sunday, Chinese vice foreign minister He Yafei said: “The US dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come.” That vote of confidence helped the dollar inch higher on the euro, though the yen made ground across the board.
For bond markets, supply will again loom large this week as the US treasury tests investor appetite with $73 billion in three-, 10- and 30-year paper.
The last batch of treasury auctions drew surprisingly strong demand, crucially from foreign central banks who now hold almost $2 trillion of US government debt.
However, traditionally central banks have been less keen on debt of 10 years or more and markets will be anxious in case demand at any of the tenders falls short of expectations. Yields on 10-year notes were little changed from Thursday at 3.5%.