Asian stocks are lower early afternoon Wednesday as investors turn their attention to the health of the U.S. economy - and the implications of any U.S. slowdown for a region which still relies heavily on exports.
Regional currencies are also weaker while the yen has found some safe-haven interest along with domestic government bonds.
The moves come on the heels of a drop in U.S. stocks as concern mounts about the spillover to the broader economy of a housing price slump.
While some stock markets have come off their initial troughs, the falls are a reminder that major concerns about the U.S. housing sector and credit markets are yet to be resolved, and that more volatility is likely as investors seek clarity on the economic front.
U.S. stock futures are largely flat in screen trade but spreadbetting companies are calling European markets to follow Asia lower, with Cantor Index forecasting the U.K.'s FTSE 100 index down 45 points and Germany's DAX 30 down 77 points.
Standard Chartered in a research report warned "the macroeconomic impact from the subprime fallout is real."
It expects investors to continue to exercise caution, "with recoveries being seen as opportunities to exit positions rather than as a reason to believe there is no more bad news to come."
Maki Shimizu, a Japanese Government Bond strategist at UBS in Tokyo, said, "the markets are concerned about the impact on the real economy going forward, which will be more serious than the market originally thought, or at least it's coming sooner than the market expected. This kind of market turmoil really shows the global connections."
A report out earlier in the week by UBS noted Singapore and Hong Kong appear most exposed to any global economic slowdown, with India and China on the low side and South Korea and Taiwan bunched in the middle. It also said Taiwan and South Korea's economies are the most leveraged in Asia, ex-Japan, and a drop in export-derived income could thus have a relatively larger impact on consumption and investment in those economies.
In some stock markets, Wednesday's selling erased what was left of gains logged over the past week. Japan's Nikkei 225 index dropped 2.5% to 15878, Korea's Kospi Composite fell 1.4% to 1,803, and Australia's S&P/ASX 200 declined 1.8% to 6066. Taiwan's Weighted Index fell 1.8% to 8566.15.
The selling was broad based, and in Japan a rising yen continued to pressure shares of exporters.
The yen was recently at Y114.06 to the dollar, after falling as low as Y113.86. The euro broke below Y155 to touch Y154.62, while the New Zealand dollar was at US$0.6916 after a brief foray under US$0.6900.
The flight to safer investments led investors to government bonds. In Japan, lead September Japan Government Bond futures were up 0.46 at 135.90 after touching 136, their highest level since August 22.
Asia's credit default swaps were also showing wider spreads with the iTraxx Asia ex-Japan index quoted at 92-98 basis points after closing at 86.70 basis points Tuesday. Philippine 5-year CDS - a benchmark for Asia's high-yield bonds - were quoted at 195 basis points compared with 177 basis points Tuesday.
More U.S. August Economic Data Awaited
Analysts pointed to growing concern about the effect on the U.S. - and global - economy of a prolonged slump in the U.S. housing market, which may now be feeding into consumer sentiment.
Overnight, the S&P/Case-Shiller home-price index was reported 3.2% lower in the last quarter, from the same period a year ago. Also, the Conference Board's reading of consumer confidence dropped sharply in August, to 105 from 112.6 in July - though this result was largely in line with market forecasts.
Traders expect a series of Federal Reserve interest rate cuts in coming months, aimed at shoring up economic growth. The December fed-funds futures contract is currently pricing in a 88% chance for the interest rate to be at 4.25%, a full percentage point below its current level.
Up for discussion now is whether the Fed will act before its scheduled meeting in late September. "We've got a fresh bout of jitters now, but the Fed won't want to overreact, I think they will want to wait until September 18 before doing anything," said Khoon Goh, ANZ Bank senior economist in Auckland.
There's more U.S. economic data in store this week, while Fed chief Ben Bernanke will give a speech which may clarify how likely a rate cut is for September.
"The only possible positive incentive we can expect for the stock market this week is Bernanke's speech" on Friday, said a trader at a Japanese brokerage.
Regional currencies are also weaker while the yen has found some safe-haven interest along with domestic government bonds.
The moves come on the heels of a drop in U.S. stocks as concern mounts about the spillover to the broader economy of a housing price slump.
While some stock markets have come off their initial troughs, the falls are a reminder that major concerns about the U.S. housing sector and credit markets are yet to be resolved, and that more volatility is likely as investors seek clarity on the economic front.
U.S. stock futures are largely flat in screen trade but spreadbetting companies are calling European markets to follow Asia lower, with Cantor Index forecasting the U.K.'s FTSE 100 index down 45 points and Germany's DAX 30 down 77 points.
Standard Chartered in a research report warned "the macroeconomic impact from the subprime fallout is real."
It expects investors to continue to exercise caution, "with recoveries being seen as opportunities to exit positions rather than as a reason to believe there is no more bad news to come."
Maki Shimizu, a Japanese Government Bond strategist at UBS in Tokyo, said, "the markets are concerned about the impact on the real economy going forward, which will be more serious than the market originally thought, or at least it's coming sooner than the market expected. This kind of market turmoil really shows the global connections."
A report out earlier in the week by UBS noted Singapore and Hong Kong appear most exposed to any global economic slowdown, with India and China on the low side and South Korea and Taiwan bunched in the middle. It also said Taiwan and South Korea's economies are the most leveraged in Asia, ex-Japan, and a drop in export-derived income could thus have a relatively larger impact on consumption and investment in those economies.
In some stock markets, Wednesday's selling erased what was left of gains logged over the past week. Japan's Nikkei 225 index dropped 2.5% to 15878, Korea's Kospi Composite fell 1.4% to 1,803, and Australia's S&P/ASX 200 declined 1.8% to 6066. Taiwan's Weighted Index fell 1.8% to 8566.15.
The selling was broad based, and in Japan a rising yen continued to pressure shares of exporters.
The yen was recently at Y114.06 to the dollar, after falling as low as Y113.86. The euro broke below Y155 to touch Y154.62, while the New Zealand dollar was at US$0.6916 after a brief foray under US$0.6900.
The flight to safer investments led investors to government bonds. In Japan, lead September Japan Government Bond futures were up 0.46 at 135.90 after touching 136, their highest level since August 22.
Asia's credit default swaps were also showing wider spreads with the iTraxx Asia ex-Japan index quoted at 92-98 basis points after closing at 86.70 basis points Tuesday. Philippine 5-year CDS - a benchmark for Asia's high-yield bonds - were quoted at 195 basis points compared with 177 basis points Tuesday.
More U.S. August Economic Data Awaited
Analysts pointed to growing concern about the effect on the U.S. - and global - economy of a prolonged slump in the U.S. housing market, which may now be feeding into consumer sentiment.
Overnight, the S&P/Case-Shiller home-price index was reported 3.2% lower in the last quarter, from the same period a year ago. Also, the Conference Board's reading of consumer confidence dropped sharply in August, to 105 from 112.6 in July - though this result was largely in line with market forecasts.
Traders expect a series of Federal Reserve interest rate cuts in coming months, aimed at shoring up economic growth. The December fed-funds futures contract is currently pricing in a 88% chance for the interest rate to be at 4.25%, a full percentage point below its current level.
Up for discussion now is whether the Fed will act before its scheduled meeting in late September. "We've got a fresh bout of jitters now, but the Fed won't want to overreact, I think they will want to wait until September 18 before doing anything," said Khoon Goh, ANZ Bank senior economist in Auckland.
There's more U.S. economic data in store this week, while Fed chief Ben Bernanke will give a speech which may clarify how likely a rate cut is for September.
"The only possible positive incentive we can expect for the stock market this week is Bernanke's speech" on Friday, said a trader at a Japanese brokerage.
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