Nigel Stephenson London
STOCKS worldwide began the fourth quarter on a negative note yesterday, as lacklustre economic data and civil unrest in Hong Kong kept investors cautious before a European Central Bank (ECB) meeting tomorrow.
The dollar held close to a four-year high, helped by weak factory activity data, pushing commodity prices lower.
The pan-European FTSEurofirst 300 equity index was down 0.2 percent after final September purchasing manager numbers from France, Germany and the euro zone as a whole underlined the fragility of the European recovery.
The numbers, with slowing euro zone inflation data on Tuesday, highlighted the divergent monetary policy outlook between the US Federal Reserve on the one hand and the ECB and Bank of Japan on the other.
“Since the Fed meeting on September 17, we’ve seen a ‘risk-off’ trade, with the fixed income market playing its role of ‘safe haven’ while equities and commodities have been slipping in negative territory,” said Ycap Asset Management’s head of quantitative strategies in Paris, Gregory Raccah.
ECB president Mario Draghi is on a mission to avert deflation as the euro region’s economic landscape deteriorates.
As its economic weakness spreads to countries in the region’s core, the ECB will face increased scrutiny tomorrow when it unveils details of an asset-purchase plan. The fresh round of stimulus comes against a backdrop of weak inflation and stuttering growth, with geopolitical uncertainty and high unemployment weighing on confidence and demand.
“It is hard to put any positive spin” on the data, said Howard Archer, chief European economist at IHS Global Insight in London. “Clutching at straws, the best that can be said is that it indicates that the manufacturing sector is still growing.”
“The central bank will have to convince investors it has the firepower to stave off deflation risks. We’ll wait for Thursday’s ECB meeting before buying the market,” said Barclays France director Franklin Pichard.
Manufacturing stumbled across most of Asia in September. The closely watched Chinese purchasing managers index (PMI) stuck at 51.1, modestly above the 50 level that separates growth from contraction.
MSCI’s main index of Asia-Pacific shares outside Japan fell 0.2 percent. In Tokyo, the Nikkei stock index closed 0.6 percent lower. Big Japanese manufacturers were more optimistic in the third quarter, but service-sector sentiment worsened, a central bank survey showed.
Chinese stock markets were closed for a national holiday but investors warily monitored thousands of pro-democracy protesters in Hong Kong, where demonstrations spread.
US shares closed the third quarter on a downbeat note, dragged lower by energy and materials shares as consumer confidence fell in September for the first time in five months and home prices rose less than expected in July.
The dollar, riding high in recent weeks, topped ¥110 (R11.32) for the first time in six years. The Japanese currency was last down 0.1 percent at ¥109.77.
The euro, which plumbed a two-year low under $1.26 (R14.20) on Tuesday after the euro zone inflation data was seen making ECB monetary stimulus more likely, was down 0.2 percent at $1.2612.
Analysts said US jobs data due tomorrow would be crucial for the dollar’s near-term prospects. “Friday’s non-farm payrolls will be key, as it could raise rate hike expectations another notch,” said Barclays Bank chief Japan FX strategist in Tokyo, Shinichiro Kadota.
Dollar strength and concern over growing supply have weighed heavily on Brent crude oil lately. The strong dollar also took its toll on gold. The metal traded at $1 216.50 an ounce yesterday. – Reuters