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London - The uncertain worldwide growth outlook flushed more
investors out of riskier assets on Monday, sending shares and commodities down,
despite signs that a drive by Europe’s leaders to tackle the region’s debt
crisis was gathering momentum.
The euro slid 0.2% to $1.2430, though it was trading well
above the $1.2288 it hit on Friday, its lowest level since July 2010, while
Brent crude oil fell below $97 a barrel to a 16-month low.
But safe haven German government bond yields also rose from
last week’s record lows as some investors looked to take profits on the sharp
moves of the past week, with low liquidity due to a UK market holiday
exacerbating price swings.
“Investors are just fleeing risk assets,” said ATI Asset
Management chief investment officer Simon Burge.
The latest sell-off followed disappointing US jobs growth
figures on Friday and weak Chinese manufacturing data, which stoked fears that
deepening problems in the eurozone are causing a global slowdown in business
activity.
Those fears caused sharp falls across Asian markets on
Monday, dragging Tokyo's Topix index to a 28-year low, and followed a fall of
more than 2% in US stocks on Friday.
US stock index futures also pointed to a
lower open on Wall Street on Monday.
The MSCI world equity index was down 0.5% at 290.58 points,
and is back at levels last reached in December before a wave of coordinated
central bank intervention sparked a recovery.
In thin European markets, the FTSE Eurofirst 300 index of
top shares was down 0.1% at 953.94 points after hitting a six-month low on
Friday, while the blue chip EuroSTOXX 50 was down 0.9% at 2,086.62 points.
Investors are waiting to see if policy meetings by the
European Central Bank (ECB) and the Bank of England this week will produce any
sign that another wave of easing is likely given the weaker-than-expected
economic data.
Figures on Monday showing eurozone factory prices were
unexpectedly stable in April from March, the fourth straight month of weakening
inflation pressures, offered some hope that ECB could cut rates.
“Everybody is now waiting for what decision the ECB will
take on Wednesday and what (US Federal Reserve Chairperson Ben) Bernanke will
announce on Thursday.
"There are strong expectations that something will happen,
otherwise the market will go much further down,” said Francois Duhen,
strategist at CM-CIC Securities.
However, the latest Reuters survey of economists’
expectations, taken before the latest US jobs data, showed only a third of
economists - 27 out of 73 - say the ECB will cut interest rates before the end
of the year, and only 11 expect it to move at this week’s meeting.
“Without any political or monetary intervention, markets are
left in a vacuum,” said Stewart Richardson, chief investment officer at RMG
Wealth Management.
“The potential for a market capitulation in this period is
high, and if we are correct in this view, we fully expect coordinated money
printing from the major central banks towards the end of June,” he said.
European masterplan
Europe’s leaders are trying to ease market concerns by
speaking out about moves to greater fiscal integration before their summit at
the end of the month, and before a G20 group of nations meeting on June 18 and
19.
German Chancellor Angela Merkel has been pressing for a
central authority to manage euro area finances, and also wants a coordinated
approach to reforming labour markets, social security systems and tax policies.
Spain, which is struggling to shore up its banking system,
signalled over the weekend that it was on board with a key element of the plan.
Spanish Prime Minister Mariano Rajoy called for the
establishment of a central authority that would oversee and coordinate national
budgets in the eurozone.
Spain will provide a big test of investor sentiment this
week when it auctions more government debt on Thursday. Its 10-year bond yields
have eased to around 6.5%, close to the 7% level at which other indebted
countries have been forced to seek an international bailout.
Commodity sell-off
The past week has been another bearish one for commodities
as investors fear the slowdown in China coupled with the faltering US recovery
will hurt demand.
According to analysis by Standard Chartered Bank, funds that
specialise in tracking commodity prices have seen assets under management (AUM)
fall $1bn since the start of the year.
However, this was mainly due to price falls.
Last week saw outflows of $91m or 0.6% of AUM.
In price action on Monday Brent crude lost nearly 2% to hit
a session low of $95.63 a barrel, its lowest since late January 2011.
US crude fell $1.82 to $81.41 a barrel after tumbling as low
as $81.32 earlier in the session, its lowest level since last October.
Gold mostly held its ground around $1 615 an ounce after its biggest rally in more than three years on Friday suggested bullion is regaining its safe haven draw.
