Global shares fell to one-month lows on Wednesday after US manufacturing activity tumbled to its lowest since 2009, sparking fears of an impending recession in the United States that could dent global growth.
A slowdown in US economic growth would remove one of the few remaining bright spots in the global economy and come just as Europe also seems close to falling into recession.
MSCI’s gauge of stocks across the globe, covering 49 markets, stood near its lowest level since early September after shedding 0.83 percent in the previous session.
In Asia, MSCI’s ex-Japan Asia Pacific shares index dropped 0.32 percent, with Australian shares falling more than 1 percent. Japan’s Nikkei slid 0.50 percent, further erasing gains made over the past three weeks.
Chinese shares also disappointed, with the major Shanghai Shenzhen Composite Index falling 1 percent.
“There are unequivocal fears of a recession,” AxiTrader Asia Pacific Market Strategist Stephen Innes told Al Jazeera, citing the worse-than-expected US data from the Institute of Supply Management (ISM) as a key factor.
ISM’s index of US factory activity, one of the most closely-watched data on US manufacturing, dropped 1.3 points to 47.8, the lowest level since June 2009.
A reading below 50 indicates contraction in the manufacturing sector. Markets had been expecting the index to rise back above 50.
The weak data lifted the Fed funds rate futures price sharply, with the November contract now pricing in about an 80 percent chance the US Federal Reserve will cut interest rates this month, compared to just over 50 percent before the data.
But the possibility of a rate cut is failing to excite stock markets as they are overshadowed by worries over a slowdown in global growth, according to Innes.
The poor data lifted the Fed funds rate futures price sharply, with the November contract now pricing in about an 80 percent chance the US Federal Reserve will cut interest rates this month, compared to just over 50 percent before the data.
“There is terrible [manufacturing] data coming out of Asia and Europe that signals that CEOs are not spending because they’re worried about global growth,” Innes said.
Eurozone manufacturing data showed the sharpest contraction in almost seven years.
Another key bellwether casting gloomy shadows over Asia is the South Korean won, which has weakened against the US dollar and signals a potential weakening of Asian currencies, typically negative for manufacturers, Bangkok-based Innes said.
Adding to tensions in Asia, North Korea carried out at least one more projectile launch on Wednesday, a day after it announced it will hold working-level talks with the US at the weekend.
On Wall Street, the S&P 500 lost 1.23 percent to hit four-week lows.
The US 10-year Treasuries yield fell to 1.637 percent, reversing earlier gains sparked by a jump in Japanese government bond yields and hitting the lowest level since early September.
“In terms of the outlook on the manufacturing, US-China trade talks planned next week is everything. If that goes well, we could well see a V-shaped recovery in the ISM data in coming months,” Hirokazu Kabeya, chief global strategist at Daiwa Securities told Reuters.
“That means we can’t just bet on a further decline in the US economy now. On the whole, I don’t think we need to change our view that the US economy remains relatively solid,” he added.
Gold rose back to $1,479.80 per ounce from a two-month low of $1,459.50 hit on Tuesday on the back of a robust US dollar.
In the currency market, the US dollar slipped from Tuesday’s two-year high against a basket of currencies as the ISM survey has shaken the notion that the US economy will withstand the escalating trade war.
The yen rose to 107.75 yen per dollar, from Tuesday’s low of 108.47.
The euro stood at $1.0932, having bounced off a near 2.5-year low of $1.0879 hit in European trade.
The Australian dollar fetched $0.6705, having hit a 10.5-year low of $0.6672 the previous day after the Reserve Bank of Australia cut interest rates and expressed concern about job growth.
The weak US data pushed oil prices to near one-month lows, although reports of a third-quarter decline in output from the world’s largest oil producers kept oil from falling further.
US crude stocks fell last week, data from industry group the American Petroleum Institute showed on Tuesday, helping to lift oil prices in Asia.
Brent crude futures rose 0.63 percent to $59.26 a barrel, after hitting a four-week low of $58.41 on Tuesday, while US West Texas Intermediate (WTI) crude gained 0.78 percent to $54.04 per barrel after hitting a one-month low of $53.05.