World shares head for worst month ever
Saturday, 1 November 2008
LONDON, Oct 31 (Reuters) - Shares in Asia and Europe fell on Friday, heading for their worst month ever, while the low-yielding yen surged as Japan's interest rate cut failed to erase concerns about the deteriorating global economic outlook.
The Bank of Japan joined a global easing cycle by trimming interest rates by 20 basis points to 0.3 per cent, but disappointed many who had expected a bigger quarter point cut.
The move followed the Federal Reserve's decision to cut interest rates to 1.0 per cent -- its lowest level since June 2004 -- to stave off a prolonged recession. China, Hong Kong and Taiwan also lowered the cost of borrowing this week, with the euro zone, Australia and Britain seen following suit next week.
However, investors feared a round of rate cuts was not enough to stem the flow of worsening corporate earnings and bolster consumer consumption in major economies which might be already in recession.
In response, oil and commodities fell sharply.
"Volatility is the watchword today," said Adam Cole, global head of currency strategy at RBS Capital Markets. "The usual risk aversion plays will also come into play given losses in Asian shares." MSCI world equity index MIWD00000PUS fell 0.9 per cent. The index has fallen 21 per cent this month, on track for its worst monthly performance in the index's 20-year history.
Asian stocks: MIAPJ0000PUS ticked down on the day and European stocks were down 0.7 per cent. Both indexes also headed for their worst month ever.
U.S. crude oil CLc1 fell 3.0 per cent to $63.96 a barrel, falling all the way from its record high around $147 set only in July. Gold fell to $724.10 an ounce.
YEN, DOLLAR SURGE: The yen surged 1.7 per cent to 96.98 per dollar even as the BOJ cut interest rates.
Risk-averse investors were chasing the low-yielding Japanese currency across the board, sending the yen up nearly four per cent to 122.69 per euro.
The dollar rose 1.3 per cent against a basket of major currencies.
"The gradual shift in market attention from credit issues to real economic concerns suggests that market stability and releveraging will be some months away," Calyon said in a note to clients.
"The economic news is set to worsen, implying only a very gradual easing in risk aversion in the months ahead and potentially negative feedback to credit markets. Against this background the dollar is set to remain firm."
Meanwhile, UK banking giant Barclays said it was raising $12 billion in capital.
Interbank lending rates fell sharply, suggesting that the moves taken by central banks and others to remove blockages in the credit system were working to some extent.
Inflation in the euro zone fell to 3.2 per cent year-on-year in October, the European Union's statistics office said, data likely to ease any concerns at the European Central Bank (ECB) about rising prices.
Policymakers have been struggling to find the right response to a rapid global slowdown that has hammered corporate profits and sparked a record freefall in stock markets in October.
The global downturn has come hard on the heels of the credit crunch, the worst financial crisis since the Great Depression, with investors facing what Japanese Prime Minister Tara Aso called "a harsh storm seen only once in 100 years."
There were mixed signs about the credit crunch. Interbank rates -- the cost banks charge to lend to each other -- fell.
But at the ECB, overnight deposits from banks soared to a new record, suggesting banks still preferred to deposit money with the central bank than lend to each other.
Equity markets fell again, with Japan's Nikkei closing down 5.0 per cent on disappointment at the size of the interest rate cut.
European shares were off 0.9 per cent and Wall Street looked set for a similarly weak start.
The Bank of Japan joined a global easing cycle by trimming interest rates by 20 basis points to 0.3 per cent, but disappointed many who had expected a bigger quarter point cut.
The move followed the Federal Reserve's decision to cut interest rates to 1.0 per cent -- its lowest level since June 2004 -- to stave off a prolonged recession. China, Hong Kong and Taiwan also lowered the cost of borrowing this week, with the euro zone, Australia and Britain seen following suit next week.
However, investors feared a round of rate cuts was not enough to stem the flow of worsening corporate earnings and bolster consumer consumption in major economies which might be already in recession.
In response, oil and commodities fell sharply.
"Volatility is the watchword today," said Adam Cole, global head of currency strategy at RBS Capital Markets. "The usual risk aversion plays will also come into play given losses in Asian shares." MSCI world equity index MIWD00000PUS fell 0.9 per cent. The index has fallen 21 per cent this month, on track for its worst monthly performance in the index's 20-year history.
Asian stocks: MIAPJ0000PUS ticked down on the day and European stocks were down 0.7 per cent. Both indexes also headed for their worst month ever.
U.S. crude oil CLc1 fell 3.0 per cent to $63.96 a barrel, falling all the way from its record high around $147 set only in July. Gold fell to $724.10 an ounce.
YEN, DOLLAR SURGE: The yen surged 1.7 per cent to 96.98 per dollar even as the BOJ cut interest rates.
Risk-averse investors were chasing the low-yielding Japanese currency across the board, sending the yen up nearly four per cent to 122.69 per euro.
The dollar rose 1.3 per cent against a basket of major currencies.
"The gradual shift in market attention from credit issues to real economic concerns suggests that market stability and releveraging will be some months away," Calyon said in a note to clients.
"The economic news is set to worsen, implying only a very gradual easing in risk aversion in the months ahead and potentially negative feedback to credit markets. Against this background the dollar is set to remain firm."
Meanwhile, UK banking giant Barclays said it was raising $12 billion in capital.
Interbank lending rates fell sharply, suggesting that the moves taken by central banks and others to remove blockages in the credit system were working to some extent.
Inflation in the euro zone fell to 3.2 per cent year-on-year in October, the European Union's statistics office said, data likely to ease any concerns at the European Central Bank (ECB) about rising prices.
Policymakers have been struggling to find the right response to a rapid global slowdown that has hammered corporate profits and sparked a record freefall in stock markets in October.
The global downturn has come hard on the heels of the credit crunch, the worst financial crisis since the Great Depression, with investors facing what Japanese Prime Minister Tara Aso called "a harsh storm seen only once in 100 years."
There were mixed signs about the credit crunch. Interbank rates -- the cost banks charge to lend to each other -- fell.
But at the ECB, overnight deposits from banks soared to a new record, suggesting banks still preferred to deposit money with the central bank than lend to each other.
Equity markets fell again, with Japan's Nikkei closing down 5.0 per cent on disappointment at the size of the interest rate cut.
European shares were off 0.9 per cent and Wall Street looked set for a similarly weak start.