Hong Kong - Most Asian stock markets fell 1-3% while gold rose on Wednesday on investor worries of lower corporate earnings in a weakening global economy, even as money markets continued to heal gradually.
Major European share markets were expected to open as much as 2% down , according to financial bookmakers, after the FTSEurofirst 300 index rose nearly 14% in the last two days.
Oil prices were not far from a 12-month low hit on Friday while the yen and US Treasuries climbed, reflecting fears the damage that the financial crisis inflicted on the global economy is still working its way through the system.
Quarterly reports have begun to trickle in, with JPMorgan Chase & Co and Merrill Lynch set to post their results this week. Investors will be focused on the outlook and whether most expectations for a rebound in 2009 will have to be reined in.
"While the financial system crisis appears to be heading in a positive direction, the economy appears to be increasingly bad, and this is raising worries about company earnings. We still don't know how much these might be hit," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management in Tokyo.
The MSCI index of Asia-Pacific stocks outside of Japan fell 2.2% and is down 12.5% so far in October.
Hong Kong's Hang Seng index slid 2.9%, snapping a two-day 14% rally. Shares of HSBC and China Construction Bank, one of the country's largest banks, weighed the most on the index.
Japan's Nikkei share average rallied to close up 1% after trading lower for most of the session. The index on Tuesday posted a record rise of 14.2%.
Earnings estimates have come way down for 2008, with some markets even set for overall losses in Asia. However, expectations for 2009 are still for growth well into the double digits in places like Hong Kong, Singapore and Taiwan, according to international estimates tracker IBES.
The upcoming results season could make analysts revisit those projections.
Credit pressures ease, recession fears rise
This week the biggest and most direct effort yet by policymakers around the world to thaw short-term lending markets has had some success, particularly in slowing plunging global equity markets. Money market pressures were easing slowly, tightening credit spreads, and the risk of a system-wide failure has passed for now.
Governments around the world have ushered in a new, uncertain era in banking, having pledged about $3.2 trillion to among other things guarantee bank deposits, back interbank borrowing and recapitalise financial institutions.
Many analysts were still working out the implications of such a radical change in the world's financial structure and what it might mean for markets.
"The optimistic scenario is that credit markets gradually recover with equities generating a virtuous feedback loop. With spreads so wide the feedback loop could go on for a while,"
said Adrian Mowat, JPMorgan's emerging markets and Asia-Pacific equity strategist.
However, the US, eurozone and Japanese economies are all widely expected to slip into recessions, threatening growth in emerging markets.
San Francisco Federal Reserve President Janet Yellen warned in a speech the US economy appeared to be in a recession and that job creation could struggle for months or even years. The futures market reflects a 92% chance the Fed will reduce interest rates to 1.25% from 1.5% this month.
"As a result of the growing economic/earnings pessimism risk trades could come back to the fore more quickly than many anticipate," strategists with Calyon in Hong Kong said in a note.
"The US dollar may not benefit as much as it has done over recent weeks as it appears that the bulk of deleveraging-related repatriation flows have been undertaken, as well as the fact that market pessimism is once again being directed towards the US."
The yen rose broadly on renewed unwillingness among investors to take risks with the global economy slowing sharply.
The euro fell 0.8% against the yen to ¥138.07 and dropped 0.2% against the dollar to $1.3589. The US dollar fell 0.6% from late New York trade to ¥101.60.
US Treasury debt prices recovered after falling sharply on Tuesday on worries about increased government borrowing needs as a result of bank rescue packages.
The benchmark 10-year yield which moves in the opposite direction of the price, slid to 4.03% after hitting a three-month high of 4.09% on Tuesday.
US crude oil futures were down 0.3% to $78.44 a barrel after a 3% decline overnight on expectations for slowing demand.
Gold rose 1.3% in the spot market to $846.10 an ounce and is up 7.6% from a month ago.
- Reuters