Asian stocks stumbled on Thursday while the euro held near two-month highs against the dollar after surprisingly downbeat first-quarter economic growth in the United States – a key export destination for many of the region’s economies.
Spreadbetters expected the equity markets to stabilize a little in Europe, forecasting Britain’s FTSE, Germany’s DAX and France’s CAC to open flat to slightly firmer.
The disappointing news on the world’s biggest economy comes on top of a worrying slowdown in China and persistent worries about Europe as Greece scrambles to avoid bankruptcy.
New Zealand’s central bank said early in the day that it could cut interest rates if domestic momentum weakened.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 percent with South Korean, Australian, Chinese and Hong Kong shares suffering losses.
Japan’s Nikkei slumped 2.6 percent, extending losses after the Bank of Japan kept monetary policy unchanged. The decision had been expected, but disappointed some participants who had bet it may ramp up its already massive stimulus program.
The drop in Asian equities followed Wednesday’s slide in U.S and European stocks, with Germany’s DAX – which hit a record high earlier this month – tumbling 3.2 percent on the euro’s surge.
“Risk has been building in the markets for weeks – the mass stock market trading account openings in China, the rally in Europe as the ECB ploughs on with its 65 billion euro a month QE program,” said Evan Lucas, market strategist at IG in Melbourne.
The U.S. economy grew just 0.2 percent in the first quarter, down sharply from the previous quarter’s 2.2 percent growth. The disappointing data further dimmed already faint prospects for an interest rate hike in June by the Federal Reserve.
“If the U.S. was the main source of the slowdown in Asian export growth in the first quarter, we should see growth start to accelerate,” analysts at ING wrote.
But some economists note that trade-reliant Asian economies are more sensitive now to growth trends in China than those in the United States.
The euro was down 0.2 percent at $1.1107 after surging to a near two-month high of $1.1188 in the wake of the U.S. data. A rise in euro zone debt yields also helped the euro. German Bund yields posted their biggest daily rise in two years overnight on waning deflation fears and improved prospects for a Greek debt deal.
The common currency shed some of its gains after investors focused on the Fed’s monetary policy statement attributing the winter slowdown in U.S. economic growth partly to transitory factors.
The Fed, however, took a gloomier view of the labor market after its two-day policy meeting ended late Wednesday.
“All in all, the FOMC statement gave a balanced assessment of the current economic slowdown and the Committee remains very much in a data-dependent mode. However, the balanced and cautious tone in the statement is a far cry from the optimism and (over)confidence that we have seen in previous statements,” economists at Rabobank wrote in a note to clients.
The dollar was down 0.4 percent at 118.61 yen after the BOJ held off from further easing.
The New Zealand dollar sank 0.8 percent to $0.7617 after the Reserve Bank of New Zealand stood pat on monetary policy and said it would cut rates if warranted.
The kiwi’s retreat nudged the Australian dollar down 0.1 percent to $0.7997 after it marched to a three-month peak of $0.8077 overnight on the dollar’s broad weakness.
In commodities, U.S. crude was steady after jumping to a four-month high overnight when the first crude stock draw in five months at the Cushing, Oklahoma, hub suggested the oil glut may be starting to wane. The contract was little changed at $58.57 a barrel.