Japanese stocks crumble, Treasury yields down on economic gloom

TOKYO – Asia extended a selloff in global equities on Thursday, as heightened concerns about world economic growth sent Japanese stocks tumbling and US Treasury yields down.

 

MSCI's broadest index of Asia-Pacific shares outside Japan extended early losses and was down 0.6 percent while Japan's Nikkei stock average tumbled 2.2 percent and touched a 4-1/2-month low.

 

"It's clear that people are avoiding risks," said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management. "People started to doubt that the Japanese market may not be able to keep rising only on the recovering US economy."

 

But S&P 500 e-mini futures edged up 0.2 percent, which might portend a more stable day ahead on Wall Street as investors await more US data.

 

September industrial output and weekly jobless claims will be released later on Thursday and could paint a brighter picture than downbeat figures released on Wednesday, which came after a recent spate of weak figures from China and Europe raised fears about the health of the global economy.

 

The S&P 500 .SPX briefly turned negative for the year on Wednesday, while European equities shed 3.2 percent to mark their biggest one-day slide in almost four years.

 

US data released on Wednesday showed US retail sales and producer prices both dropped last month, a worrisome economic signal that helped fuel a sell-off on Wall Street as it quashed expectations the US Federal Reserve would hike US interest rates sooner rather than later.

 

The New York Fed's Empire State general business conditions index also plunged to 6.17 in October from September's 27.54, marking the weakest pace of manufacturing activity in New York state since April.

 

"Investor risk preference appeared to vanish overnight with large-scale loss-cutting worldwide. In the absence of market depth, wild prices fluctuations could continue for some time with volatility itself having a further negative influence on risk assets," strategists at Barclays wrote in a note to clients.

 

The grim mood sparked a safe-haven rally in U.S. Treasuries and pushed the yield on the benchmark 10-year note as low as 1.865 percent, its deepest nadir since May 2013. It last stood at 2.107 percent in Asian trade.

 

The rally carried over to the Japanese government bond market, where the yield on the 10-year JGB fell to a 1 1/2-year low of 0.470 percent.

 

Only a month ago, fed funds futures had suggested traders priced in almost a 50 percent chance of a Fed rate increase as early as June 2015. But a jump in short-term US interest rates futures on Wednesday implied traders anticipate the US central bank would not move away from its near zero rate stance until the end of the first quarter in 2016.

 

The dollar's index against a basket of six major currencies stood at 84.850, down about 0.4 percent on the day and wallowing at levels last plumbed in September. Speculation of higher US interest rates had pushed the index to a four-year high of 86.746 earlier this month.

 

Against the yen, the dollar steadied at ¥106.04, after dropping to a more than one-month low around 105.20 on Wednesday, while the euro was slightly down on the day at $1.2830 after rising as high as $1.2845, its highest level since Sept. 24.

 

Spot gold added 0.2 percent to $1,243 an ounce after marking a one-month high of $1,249.30 on Wednesday.

 

London copper CMCU3 edged up by 0.2 percent to $6,654.25 a metric ton (1.1023 tons) after shedding 2.3 percent in the previous session, its biggest daily drop since March. – Reuters