Asian shares turned lower yesterday following losses in New York and Europe as traders fret over the state of the global economy, with potentially big market-moving events coming into focus.
After a healthy run of recent gains helped by rising oil prices, investors took a step back as the head of the European Central Bank (ECB) called for action to kick start eurozone growth – which was taken as a sign its own arsenal is running low.
Mario Draghi said the cost of delaying reforms would be “simply too high”.
His comments follow an indication from Federal Reserve boss Janet Yellen that it will likely not lift interest rates until the fourth quarter, while other central banks have either announced or are contemplating cuts.
Attention is now on next week’s policy meetings of the US and Japanese central banks.
The Bank of Japan earlier this year adopted a negative interest rate policy, following a similar move in 2015 by the ECB, in a bid to nurture investment.
But the move has been criticised as being ineffective and some lenders say their bottom lines are being hit. Also, there are fears that a British referendum on its European Union membership on June 23 will see a vote to leave, which many fear could unleash a wave of turmoil across world markets.
The pound, which has seen increasing volatility in the weeks leading up to the poll, fell to $1.4438 from $1.4453 in US trade.
The cautious tone sent traders into safe investments with the yen rising against the dollar and emerging market currencies falling against the greenback. The South Korean won was down 0.8% and the Australian dollar shed 0.4%. Malaysia’s oil-reliant ringgit gave up 0.7%.“The market is looking at a very small chance of the Fed moving this week,” Chris Green, the Auckland-based director of economics and strategy at First NZ Capital Group, told Bloomberg News.
“While that’s been supportive of risk assets, a delay in the Fed rate hike is also a reflection of weaker economic backdrop.
Further weakness in US economic data along with the potential for (a British EU exit) would be a cause for concern.” Japan’s Nikkei ended 0.4% lower, while Hong Kong was off 1.2% as traders returned from a one-day public holiday.
Sydney shed 0.9% and Seoul was 0.3% lower, while Singapore eased 0.7%. Shanghai was closed for a public holiday. Oil prices drifted lower for a second day as investors booked profits from a recent surge that has seen the commodity touch 11-month highs.
In the morning West Texas Intermediate dipped 1% to $50.05, having Thursday hit its highest level since July.
However, with the dollar unlikely to pick up any time soon - which makes crude cheaper for holders of other currencies - analysts are tipping the black gold to break the $55 barrier soon.
In early European trade London and Frankfurt each dropped 0.6% and Paris slid 0.3%.
In Tokyo, the Nikkei 225 down 0.4% at 16,601.35 points and Hong Kong - Hang Seng fell 1.2% at 21,042.64 points at the close. Shanghai closed for a public holiday.