Chinese shares drops 4 pct, Japan's Nikkei closed 2 pct lower
Chinese shares were slammed more than 4 per cent lower on Friday after data showed exports contracting by a fifth, deepening fears for the world economy and pushing global equities to three-week troughs. The February data, well below expectations of a 4.8 per cent drop, worsened the brittle mood on world markets, following the European Central Bank's announcement slashing growth forecasts and unveiling a new round of policy stimulus.
While the timing of the Lunar New Year made it difficult to draw a true signal from the China data noise, the scale was alarming, especially when coupled with sombre new data from Germany and Norway. Chinese stocks plunged more than 4 per cent in their worst day in five months while Japan's Nikkei. closed 2 per cent lower.
The dark mood spilt into European stock markets where the STOXX 600 index slipped 0.5 per cent, poised for the first weekly drop in a month. "The trade data from China is a big part of it," said Fiera Capital's co-chief Investment Officer Julian Mayo.
"Our own view is that the Chinese economy is slower than people generally think, but I think the world economy is probably slower than people think - so you put those two together and it is not surprising that the trade data was weaker than expected." European auto stocks were at the forefront, slipping 1.6 per cent, with an unexpected decline in German industrial orders adding to the China woes. Financials also nursed losses for a second day after the European Central Bank cut its growth forecasts and pushed out an interest rate hike.
ECB President Mario Draghi said the economy was in "a period of continued weakness and pervasive uncertainty" as he pushed out a planned rate hike and instead offered banks a new round of cheap loans. MSCI's 47-country benchmark world index dropped for a fifth straight session - its longest losing streak since December's rout. The pressure looked to continue on Wall Street, with S&P 500 E-Mini futures easing 0.4 per cent.
Yet the cocktail of growth woes and dovish central banks proved a boon for bonds. Germany's benchmark 10-year bond yield took a step closer to zero per cent and both German and French benchmark yields were at their lowest level since 2016 - the year that saw the ECB ramp up stimulus and cut rates to fight deflation and weak economic growth. "The ECB has had a bullish impact on bond markets and that is set to continue," said Ciaran O'Hagan, rates strategist at Societe Generale in Paris. "We were not expecting something so clear, so soon, and markets were not either, so bond yields are likely to stay low for longer."
U.S. 10-year Treasury yields hit a fresh two week low 2.627 per cent. On currency markets, the euro inched up to $1.1209 after tumbling 1 per cent on Thursday to touch $1.1176 - its lowest since June 2017.
The dollar weakened 0.2 per cent after reaching a new 2019 high against a basket of currencies that includes the euro as traders bet the United States would fare better than Europe in the coming months despite some soft patches in the U.S. economy. Investors will be scouring U.S. payrolls data for February due out later in the day, with analysts uncertain how much payback there might be for January's outsized jump. There was also a chance the jobless rate could fall by more than forecast given the recent strength in employment.
In commodity markets, oil prices eased as U.S. crude output and exports climbed to record highs, undermining efforts by producer club OPEC to tighten global markets. U.S. crude was last down 38 cents at $56.28 a barrel, while Brent crude fell 49 cents to $65.81.
(With inputs from agencies.)
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