LONDON: Worldstocks were set for their seventh straight day of losses yesterday, asinvestors nervy about the possibility of a prolonged US government shutdown anda worsening global economy opted for the safety of bonds and gold. MSCI's worldequity index, which tracks shares in 47 countries, was 0.15 percent lower onthe day and down almost 7 percent in the past seven sessions -- its worststretch of daily losses since January 2016. The index is also just off itslowest level since March 2017.
"There are awhole number of factors that have triggered this latest risk off climate,including the Fed's very modest deviation from its (rate hiking) plan and thegovernment shutdown in the United States," said Investec economist PhilipShaw. The US Senate has been unable to break an impasse over US PresidentDonald Trump's demand for more funds for a wall on the border with Mexico, anda senior official said the shutdown could continue until Jan. 3.
"We may getsome clarity on several factors in early 2019 starting with a clearer line ofsight on the prospect for a resolution in US-China trade dispute, but untilthere are some nerves flying around," Investec's Shaw said. So much sothat US President Donald Trump's Treasury secretary called top U.S. bankers onSunday amid an ongoing rout on Wall Street and made plans to convene a group ofofficials known as the "Plunge Protection Team."
US stocks havefallen sharply in recent weeks on concerns over slowing economic growth, withthe S&P 500 index on pace for its biggest percentage decline in Decembersince the Great Depression. The Nasdaq has fallen nearly 22 percent from itsAug. 29 high. European stocks followed Asian bourses lower, with a pan-Europeanindex lower half a percent on the day and a shade away from a one-year low hiton Friday.
This added to asimilar move in MSCI's broadest index of Asia-Pacific shares outside Japan,though losses were limited as many bourses were either shut or set to closeearly ahead of Christmas. By 1000 GMT, Britain's FTSE 100 had fallen 0.5percent, while France's CAC and Spain's IBEX had eased 0.9 and 0.5 percentrespectively. Germany's DAX and Italy's FTSE MIB were shut for Christmas."Markets (are) still under pressure from last week's more hawkish Fedupdate, exacerbating fears about slowing growth and more expensive refinancingfollowing years of stimulus," said Mike van Dulken, head of research atAccendo Markets.
Global slowdown
The political uncertaintyhas only added to the air of risk aversion, punishing equities to the benefitof bonds. Ten-year Treasury yields were near their lowest since August at 2.789percent, having fallen over 40 basis points in just six weeks. The gap betweentwo- and 10-year yields has shrunk to only 14 basis points, a flattening of thecurve that has sometimes heralded economic turning points in the past.
"Many of thefinancial and economic indicators that turn first around business cycle peaksare now flashing red in advanced economies," warned Simon MacAdam, globaleconomist as Capital Economics. "This is consistent with our view that therecent loss of momentum in the world economy will develop into a more severeslowdown in 2019."
The flight tosafe havens again boosted the Japanese yen, with the dollar near a three-monthtrough at 111.02 yen yesterday. It fared better against the euro, which wasundermined by a run of poor European data. The single currency hovered at$1.1399, after being as high as $1.1485 last week. Against a basket ofcurrencies, the dollar index was a shade softer at 96.745. Gold too hasregained its appeal, holding near recent six-month peak around $1,262.6300 perounce. Oil prices were near their lowest since the third quarter of 2017, havingshed 11 percent last week. - AFP