Asian equities dropped on Thursday after the World Bank cut its global growth forecast amid concern central banks may pare monetary stimulus. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, Taiwan and South Korea shed by 1% to 5.28%. US stocks fell on Wednesday as traders extended a selloff driven by concern about central banks winding down their stimulus measures. Wall Street closed lower for a third straight day on Wednesday, marking the Dow’s worst losing streak this year. The Dow Jones, which initially jumped more than 100 points, finished down more than 120 points, or 0.8%, falling below the key 15,000 level once again. The 3-day slide was the blue chip index’s first one of the year. S&P 500 also slipped 0.8%, while NASDAQ tumbled more than 1%.
Volatility has picked up in recent week amid increasing unease about when central banks will begin weaning investors off cheap money. European stock markets ended lower on Wednesday after unions in Greece called a general strike and as investors worried about a potential reduction in central-bank stimulus. Germany’s DAX 30 index slid 1% to 8,143.27 while France’s CAC 40 index dropped 0.4% to 3,793.7. U.K.’s FTSE 100 index fell 0.6% to 6,299.45.
Taking cues from the volatile equities markets, global currencies were just as reactive. The World Bank report downgraded global growth for the balance of 2013 from 2.4% to 2.2% weighed heavily on the markets which were already upset in the morning as the Nikkei tumbled after disappointment on the lack of action by the Bank of Japan, which concluded its two day meeting holding rates and programs. The JPY has climbed most of the week, trading this morning at 94.81 off its low near 1.05 as the Japanese government tries to turn the economy from deflation to inflation. The Bank of Japan kicked off its aggressive stimulus program in April and there have been positive results with exports climbing and economic data reporting above expectations. The Japanese government recently got a pass on its aggressive policy’s by the G20 and has been supported by the OECD, World Bank and the IMF; traders had expected the BoJ to add new programs or additional stimulus.
The US dollar continues to weaken ahead of next week’s Federal Reserve meeting. Just weeks ago, markets were trying to decide if the Fed would begin tapering stimulus, then a rash of lackluster data lowered expectations and traders relaxed, now some analysts are thinking that the Fed might add a bit more stimulus to help the economy smooth out the road ahead. The US dollar fell 23 points this morning to trade at 80.93.
The weak US dollar is helping the euro to trade in the green, exchanging at 1.3358 adding another 23 pips today. The euro rose to a fresh 3-1/2 month high versus the US Dollar on Wednesday as investors cut favorable positions in the U.S. currency on renewed expectations the Federal Reserve’s may keep its monetary policy ultra-loose.