(Reuters) – World stocks were knocked hard on Thursday after global manufacturing data and an Ebola health scare in the United States spooked markets, sending investors scurrying to the safety of U.S. bonds, the yen and gold.
European markets were sucked into the storm before the European Central Bank’s monthly policy meeting where pressure is intensifying on it to launch an aggressive government bond purchase programme.
Investors warmed to the yen and safe-haven bonds after a slew of surveys on Wednesday showed German factory activity shrinking for the first time in 15 months, China’s manufacturing sector barely growing and the United States slowing more than expected.
All that pushed MSCI’s 45-country world stock index to a five-month low and Britain’s FTSE, Germany’s DAX and France’s CAX fell 0.3-0.6 percent in early deals as the sell-off continued.
“The market is quite nervous,” said Alvin Tan, a strategist at Societe Generale in London.
“What we are most concerned by is the risk backdrop. The S&P 500 appears to be in the process of breaking below the 100-day moving average and on top of that we see volatility picking up in not only equities but also currencies.”
Confirmation of a case of Ebola in the United States has joined a growing list of bearish news stories with geo-political tensions in Ukraine and Hong Kong, and growth concerns around China and the euro zone sapping risk appetite.
After a 1 percent drop on Wall Street, Japanese equities had led the selloff in Asia as a rebound in the yen added to the backdrop of a sputtering domestic economy to push Tokyo’s Nikkei down a sharp 2.1 percent to three-week lows.
The risk-averse mood also pushed U.S. Treasury yields into their biggest drop in just over a year, while gold rallied.
The dollar subsequently slipped back below 110 yen – a threshold breached for the first time since 2008 this week – and was last down 0.2 percent at 108.83 yen.
TRILLION EURO QUESTION
The euro steadied in early European trading at $1.2623 having crawled away from a two-year low of $1.2571 hit earlier in the week. German government bond yields sagged near their August all-time lows.
Traders were focused on the European Central Bank meeting later in the session with the divergence of U.S. monetary policy with those of Europe and Japan now an established market theme.
The U.S. Federal Reserve is trying to normalise monetary policy after years of pumping out cheap funds, while the ECB and Bank of Japan are seen stuck with their very easy policies for the foreseeable future.
ECB head Mario Draghi is set to give details at the bank’s 1230 GMT post-meeting news conference of a new plan to buy asset-backed securities and covered bonds, hoping this will finally revive the euro zone economy.
It is under pressure, however, to launch a super-sized round of government bond purchases. It plans to add another trillion euros to its balance sheet, but poor demand for a new round of cheap loans last month has raised doubts.
“In the longer term people are still hoping for full-scale quantitative easing,” said Robert Kuenzel, euro area economist at Daiwa Securities in London.
“But it is unlikely to come in the near future. I think the first line of defence is the TLTRO (cheap long-term loans to banks) and the covered bond and ABS purchase programmes, but there is a risk that both of those components disappoint.”
In commodities, Brent crude oil fell past $93 a barrel, extending a three-month losing stretch as weak economic signals from China and Europe and ample global supply continue to weigh. U.S. crude slumped $1 to $89.60 a barrel.
Gold added to small gains, buoyed by risk-averse sentiment. Spot gold rose 0.5 percent to $1,219.27 an ounce.
Markets in both China and Hong Kong had been closed for public holidays but sustained civil unrest in Hong Kong is also weighing on investor confidence, although the city’s streets were calm early on Thursday.