A fruit seller hands back change to a customer at a stall in Mumbai yesterday. The Indian rupee hit an all-time low of 59.9850 to the US dollar.
TOKYO/LONDON: Asian and European markets buckled badly yesterday after the Federal Reserve heralded an eventual end to free money and China turned the screw on credit even as factory activity in the world’s second-largest economy hit a nine-month low.
Shares, currencies and commodities all crumbled as investors rushed to unwind trades in emerging markets. Central banks across the region were busy intervening in foreign exchange markets trying to put out spot fires, but with only limited success.
At close, London’s benchmark FTSE 100 index plummeted 2.98 percent to end at 6,159.51 points, Frankfurt’s DAX 30 dived 3.28 percent to close at 7,928.48 points and in Paris the CAC 40 slumped 3.66 percent to finish at 3,698.93 points.
Wall Street also fell sharply after booking stiff losses the previous day. In midday trade, the Dow Jones Industrial Average shed 1.41 percent to 14,898.58 points, while the broad-based S&P 500 fell 1.55 percent to 1,603.61 points, and the tech-rich Nasdaq Composite Index tumbled 1.49 percent to 3,391.98 points.
On forex markets, the European single currency fell steeply to $1.3197, down from $1.3297 in New York late on Wednesday.
Eurozone bonds fell across the board, including safe-haven German government debt, pushing up interest rates. Yields on 10-year German bond, or Bunds, climbed to 1.67 percent, the highest level since February.
Among a host of unwanted milestones: Asian stocks outside Japan suffered their biggest daily loss since late 2011, key lending rates in China reached historic highs and India’s currency carved out a new record low.
“Kaboom is a better word to describe the market,” was the judgement of a trader at an overseas bank in Manila. MSCI’s broadest index of Asia-Pacific shares outside Japan sank nearly 4 percent, marking its biggest daily percentage fall since September 2011.
The falls took the index’s year-to-date loss to more than 9 percent, much of it suffered in recent weeks as fears of the Fed tapering back its massive stimulus programme and further signs of economic weakness in China prompted hefty withdrawals of cheap money from emerging markets.
Among the biggest decliners was China, where the CSI300 of the leading Shanghai and Shenzhen A-shares listings closed down 3.3 percent. In Indonesia, the Jakarta Composite Index slumped 3.7 percent as worries about the inflationary impact of a move to raise fuel prices further added to selling pressures.
Most other bourses in the region lost more than 2 percent, including Australia, Hong Kong, Singapore , and South Korea. Japan’s Nikkei stock average was off 1.7 percent, a relatively modest move given its recent wild swings, while Taiwan stocks lost 1.4 percent.
The initial catalyst for the carnage was Fed Chairman Ben Bernanke, who pulled few punches by signalling a likely end to asset buying by the middle of 2014. That sent 10-year US Treasury yields spiralling to a 15-month peak of 2.38 percent, squeezing investors who had borrowed in US dollars to invest in emerging markets.
Adding to the pain, a closely-watched measure of Chinese manufacturing took a surprise spill and only added to evidence of tepid economic growth in the second quarter. The “flash” HSBC China Purchasing Managers’ Index contracted further to 48.3 in June, from May’s final reading of 49.2, its weakest reading since September.
Hardly helping was a surge in interbank lending rates as the People’s Bank of China tightened liquidity even as banks there clamoured for cash. The Australian dollar cratered to as low as $0.9164, reflecting China’s importance as the country’s single biggest export market.
The Philippine peso lost 1.3 percent to 43.80 per dollar, its weakest since May 25 last year, while South Korea’s won fell 1.4 percent to 1,145.9.
India’s rupee hit an all-time low of 59.9850 to the US dollar, prompting intervention to stem the rot, traders said. The Reserve Bank of India is believed to have intervened twice during the day, dealers said, each time the rupee came close to the 60 level.
The rupee — the worst performing Asian currency in 2013 — ended at a new record closing low of 59.58 against the dollar. The rupee has fallen 8.7 percent in the calendar year.
The weaker currency makes imports costlier, especially of foreign oil on which India heavily relies, and will stoke already high consumer inflation. The benchmark Sensex index closed down over 2.74 percent to 18,719.29 points, on fears of overseas fund outflows from India. Elsewhere, dealers also suspected central banks in Malaysia, Indonesia and the Philippines may have stepped in to curb strong downward pressure on their currencies.
Reuters/AFP
