INSUBCONTINENT EXCLUSIVE:
SYDNEY: Global stocks were sailing into Christmas on a sea of red on Friday, as the threat of a US government shutdown and of further hikes
in US borrowing costs inflamed investor unease over the economic outlook.
The SP 500 was heading for its worst quarter since the dark days
of late 2008, with a loss of 15 per cent so far
The Nasdaq has shed 19.5 per cent from its August peak, just shy of confirming a bear market.
Oil prices slid just over 4 per cent
overnight, bringing Brent's losses since its October top to 37 per cent
The dollar had suffered its biggest one-day drop on the yen since November 2017 as investors stampeded to safe havens.
Michael McCarthy,
chief market strategist at CMC Markets, said the downward spiral was becoming self fulfilling with selling begetting more selling.
"Negative
momentum is a key factor in driving investor behaviour
Fundamental justifications are following the action," said McCarthy
"The selling will finish when it is done."
E-Mini futures for the SP 500 were off another 0.25 per cent on Friday, while MSCI's broadest
index of Asia-Pacific shares outside Japan shed 0.6 per cent.
Japan's Nikkei fell 1.8 per cent, and was down more than 6 per cent for the
week so far, while Australian stocks slipped 1 per cent to a two-year trough.
Chinese blue chips lost 1.2 per cent, in part after the United
States accused Beijing of orchestrating the hacking of government agencies and companies around the world.
Sentiment had turned sour on
Thursday when the US Federal Reserve largely retained plans to increase interest rates despite mounting risks to growth.
Markets were
further spooked when US President Donald Trump refused to sign legislation to fund the US government unless he got money for a border wall,
thus risking a partial federal shutdown on Saturday.
"Political brinkmanship in Washington is further heightening market uncertainty," said
Westpac economist Elliot Clarke.
"Friday will be a tense day in Washington, and for financial markets, as a last-minute compromise is
sought."
Adding to the air of crisis was news US Defense Secretary Jim Mattis had resigned after Trump proposed withdrawing troops from
Syria and sources said a military pullback from Afghanistan was on the cards.
The brittle mood showed on Wall Street where the Dow ended
Thursday with a loss of 1.99 per cent
The SP 500 dived 1.58 per cent and the Nasdaq 1.63 per cent.
STAMPEDE FOR THE EXITSThe sea change in sentiment has triggered a rush out of
crowded trades, including massive long positions in US equities and the dollar and short positions in Treasuries.
Lipper data on Thursday
showed investors pulled nearly $34.6 billion out of stock funds in the latest week and were heading for the biggest month of net withdrawals
on record.
There was also a sense of capitulation in currency markets as the dollar dived 1.1 per cent on the yen on Thursday to hit a
three-month trough at 110.80
It was last changing hands at 111.19 having shattered several layers of chart support.
The euro stood at $1.1455, having jumped to its
highest in over six weeks at $1.1485
Against a basket of currencies, the dollar sagged to 96.389 after suffering its largest single-session fall in two months.
The Swedish crown
was a big gainer after its central bank on Thursday raised interest rates for the first time in more than seven years.
The flight from risk
was a boon to sovereign bonds, where US 10-year yields struck their lowest since early April at 2.748 per cent
As recently as October, they had been at a seven-year top of 3.261 per cent.
The gap between two- and 10-year yields shrank to just 9 basis
points at one stage, the kind of flattening that has heralded recessions in the past.
The rally in longer-dated bonds has been fuelled by
the huge slide in oil prices, which will pile downward pressure on inflation at a time when the global economy is already slowing.
Both
Brent and US crude futures reached their lowest in more than a year overnight, but edged higher on Friday on talk production cuts by OPEC
might be larger than first thought.
US crude eked out a 61 cent bounce to $46.49 a barrel, while Brent rose 69 cents to $55.04.
Gold
continued to benefit from the reversal in the dollar to stand at $1,260.38 an ounce.
