HONG KONG (AFP) – Asian markets fell yesterday following a rout on Wall Street, as investors were bombarded by a “perfect storm” of problems that erased the positivity seen at the start of the week.
The glum mood overshadowed hints from Donald Trump at more time to resolve the China-US trade row, as well as soothing comments from China about their desire to push on with a weekend agreement between the world’s top economies.
Adding to the mounting risks are concerns about the US economy after the difference in yields on two – and 10 – year bonds narrowed, suggesting traders are increasingly concerned about longer-term prospects.
There are fears of an “inversion” where short-term yields overtake long-term rates, which in the past has been the precursor to a recession.
Wall Street suffered a battering, with the Dow slipping 3.1 per cent, S&P 500 3.2 per cent lower and Nasdaq 3.8 per cent off.
The selling continued into Asia, where Hong Kong plunged 1.6 per cent, Shanghai lost 0.8 per cent and Tokyo ended the morning 0.4 per cent down.
Singapore shed 0.8 per cent and Seoul was 0.6 per cent off, while Wellington dived 1.3 per cent. Sydney shed 1.2 per cent after data showed the Australian economy grew at a slower pace than expected in July-September. The Australian dollar also sank more than one per cent.
The selling “has all the nasty hallmarks that traders typically call the perfect storm,” said Stephen Innes, head of Asia-Pacific trade at OANDA. He said investors “are probably left feeling duped, tricked and maybe even snookered by some ill-advised backslapping comments post G20”.
“While trade war is certainly the number one driver of global risk sentiment, the current meltdown is morphing into a Hydra with familiar points of irritation – trade, (Federal Reserve), Brexit, Italy, global growth – coming to a head,” he added.
On currency markets the pound continued to struggle on concerns that Britain could be heading for the EU exit without a deal, which most observers fear could hammer the economy.
Sterling hit a 17-month low on Tuesday after Prime Minister Theresa May suffered stunning defeats in parliament that highlighted the uphill fight she has in pushing through her controversial Brexit deal.
If she loses there are expectations she will face a no-confidence vote and possible defeat that could force early elections and leave the country in chaos.
Oil prices were also down more than one per cent after another jump in US inventories came as Saudi Arabia raised questions about the chances of an output cut at a meeting of OPEC and non-OPEC members at the weekend.
Energy Minister Khalid Al-Falih said it was “premature to say what will happen” in Vienna, days after Russian President Vladimir Putin had said the two major producers had agreed to a cap to support prices.
“We need to get together and listen to our colleagues, hear about their views on supply and demand and their projections of their own countries’ production,” he said.
Crude had surged on Monday and Tuesday after Putin’s comments.
“It’s not a good price signal,” Bob Yawger, director of futures at Mizuho Securities USA, told Bloomberg News. “Either demand is bad or all the talk about cutting production is just lip service.”