After claiming the European equity benchmark and Japan’s Nikkei 225 Stock Average, bears are knocking on the door of the global share gauge. MSCI’s All-Country World Index has lost more than 18 percent from an all-time high reached in May as anxiety over the world economy haunts financial markets. Investors have the Lunar New Year holidays to thank for the measure’s relative resilience in Asian trading on Tuesday, with the gauge falling 0.4 percent as a majority of markets in the region were closed for the break.
Global currency volatility rose to 11.77 percent, according to a JPMorgan Chase & Co. gauge. Japanese government bonds of all maturities rallied Tuesday, with the five-year yield dropping 4.5 basis points, or 0.045 percentage point, to a record minus 0.225 percent. The 10-year yield reached minus 0.005 percent, an unprecedented low for a Group-of-Seven economy.
Asian share markets were scorched on Tuesday as stability concerns put a torch to European bank stocks and sent investors stampeding to only the safest of safe-haven assets.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.2 percent, with Australian shares hitting 2-1/2-year closing low, and would have been lower if not for holidays in many centres.
"Sentiment towards risk assets remained extremely bearish and price action reflected a market that may be capitulating," said Jo Masters, a senior economist at ANZ.
All of which magnified the stakes for U.S. Federal Reserve Chair Janet Yellen's testimony this week.
"She needs to come across as optimistic without being too hawkish and cautious without being negative," said Masters. "Hawkishness or dovishness could easily exacerbate the current sell-off, tightening financial conditions further."
European shares were expected to extend the previous session's steep losses on Tuesday, with the banking sector seen coming under further pressure on signs of stress in the sector.
The widening in credit spreads and the focus now on credit default swaps suggests that the pain is not going away anytime soon. There is huge demand for portfolio protection in all asset classes and it just doesn't feel like we are going to see a major turn anytime soon," Chris Weston, chief market strategist at IG, said.
"There is a genuine concern that stress in asset markets will start affecting real economics ... This period of sustained volatility and deterioration in credit will impact businesses."
The STOXX Europe 600 banking index fell 5.6 percent in the previous session, taking its total losses to around 24 percent this year on concerns about banks' profitability and capital strength in an environment where monetary stimulus continues to put pressure on margins.
Deutsche Bank fell 9.5 percent on Monday as concerns mounted about its ability to maintain bond payments. The German bank said late on Monday that it had "sufficient" reserves to make due payments this year on AT1 securities.
Reference: Reuters
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