US recession fears pin down stocks and dollar
Worries that the world's biggest economy may be deteriorating more rapidly than expected sent stocks from Sydney to London lower on Friday, and kept the dollar pinned at two-week lows versus a basket of currencies.
US data on Thursday showed US mid-Atlantic factory production slumped to its lowest level since the 2001 recession, and an index of future US economic activity pointed to even tougher times ahead.
But safe-haven European government bonds, which rose earlier on those US worries, suffered a setback after a report showed euro zone services growth unexpectedly bounced back in Feburary from a 4-1/2 year low.
Still, investors were increasingly wary of taking risk with European credit spreads widening. The iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was 12 basis points wider at 589 points.
"This is going to be a Darwin market, survival of the fittest and strongest," said Justin Urquhart, strategist at 7 Investment Management.
"The market is looking very short term. It's very nervous, it can't find any longer-term reason to push the value up."
The FTSEurofirst 300 index of top European shares fell 0.4 per cent, with London's FTSE down 0.5 percent and Germany's DAX 0.8 per cent lower.
Energy stocks such as Royal Dutch Shell were among the losers after worries that weaker U.S. growth would slow demand kept crude oil well off a recent all-time high above $101 (Dh370.67) a barrel. US crude fell 40 cents to $97.77 (Dh358.82).
Earlier, Japan's Nikkei lost 1.4 per cent, while MSCI's measure of other Asian stock markets slid 0.7 per cent. MSCI's main world equity index was 0.2 per cent lower.
Dollar Subdued, Bonds Climb
In the currency market, the dollar touched a fresh two-week low versus the euro and slipped against the yen, which tends to benefit as investors pare risky carry trades that involve borrowing the low-yielding currency.
The euro traded at $1.4835 (Dh5.44), after peaking at $1.4847 (Dh5.45) earlier, while the dollar eased to 107.22 yen, well off the high above 108 yen in the previous session.
"It is a weak dollar story more than anything else. As you saw yesterday the Philly Fed was really what hurt the dollar," said Niels Christensen, FX strategist at Nordea in Copenhagen. In contrast, "there is no sign of an early rate cut from the ECB."
The ECB has held its benchmark rate at 4 per cent since last June while the Fed has slashed its key rate to 3 per cent.
Investors, who initially took cover among government bonds, reversed those trades after the better-than-expected euro zone services data, pushing yields up. The 10-year Bund yield edged up to 4.0 per cent, while the 2-year yield rose to 3.349 per cent.
Also seen as a safe haven in times of market woes, gold traded at $948.50 (Dh3,481) an ounce, not far off its all-time high of $953.60 (Dh3,500) set a day earlier.
Dealers said gold's uptrend remained intact with the prospect of more US interest rate cuts supporting its appeal as an alternative investment. (Reuters)