Asian stocks got off to shaky start on Monday in step with a steep decline on Wall Street as worries about global economic growth sapped confidence, keeping crude oil prices stuck near four-year lows.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, extending last week’s 1.1 percent drop. Australia’s S&P/ASX 200 index (.AXJO) dipped 0.5 percent, while South Korea’s KOSPI (.KS11) slid 0.8 percent.
Japanese financial markets are closed on Monday and other major centers including the United States and Canada will be partially, or fully, shut for holidays as well.
The declines in Asian markets came after U.S. stocks (.SPX) skidded 1.2 percent on Friday and Wall Street’s fear gauge, the CBOE Volatility Index (.VIX), jumped to a near two-year high.
At an International Monetary Fund and World Bank meeting in Washington on Saturday, IMF member countries called for bold action to bolster the global economic recovery and flagged Europe as a top concern.
“The sell-off on Friday was brutal. Maybe even overly so,” said Evan Lucas, strategist at IG in Melbourne.”With global growth being slashed and the outlook for emerging markets looking very shaky, Australia will suffer more than most developed nations.”
Asia’s MSCI index has fallen every week in the past five and is now down 10 percent from a near seven-year peak set early last month.
With Europe staring at the prospects of a recession, Japan’s economy floundering, China’s expansion slowing and the Federal Reserve on track to end its bond-buying stimulus soon, investors have been cutting back on risk assets in earnest.
Chinese trade data due later in the day will be closely watched and any disappointment there will no doubt keep investors in a ‘risk off’ mode.
All this anxiety has helped shore up the safe-haven yen, which rose to an 11-month high against the euro at 135.58 (EURJPY=R) early on Monday.
It reached a one-month high on the greenback at 107.26 (JPY=), pulling well away from a six-year trough of 110.09 per dollar reached early this month.
The Australian dollar, usually used as a liquid proxy for China plays and more generally for risk assets, fell to $0.8670 (AUD=D4) back near a four-year trough of $0.8642 plumbed early this month.
Commodities have also taken a hit, none more so than crude oil which has to contend with ample supply as well.
Brent crude (LCOc1) has dropped $25 since June and on Friday came within a whisker of $88 a barrel for the first time in nearly four years. It last traded at $89.00.
Copper (CMCU3) at $6,674 per ton was flirting with a five-month trough of $6,600 set early this month. Spot gold (XAU) traded at $1,230 an ounce, keeping off last week’s 15-month low of $1,183.46.
Underscoring the gloom surrounding the euro zone, Standard & Poor’s on Friday slapped a negative outlook on France’s sovereign ratings, topping off a difficult week that featured a string of worryingly weak Germany data.
European Central Bank President Mario Draghi said a slowdown in the euro zone’s economic momentum could weigh further on the reluctance of companies and households to invest.
Draghi reiterated that the ECB Governing Council was unanimous in its commitment to using additional unconventional instruments within its mandate to address risks of a too-long period of low inflation.
Several Federal Reserve officials, most notably, Fed Vice Chairman Stanley Fischer, said on Saturday efforts to normalize U.S. monetary policy after years of extraordinary stimulus may be hampered by the global outlook.