Asian stocks slumped 7% and commodity-related currencies tumbled on Thursday as more evidence that the United States economy is shrinking made investors brace for a potentially deep and prolonged global recession.
Major European stock markets were expected to open as much as 3,6% lower, according to financial bookmakers, following sharp declines in Asia and the US after a raft of gloomy economic data.
After toying for several days with raising their threshold for risk by buying beaten-down shares, investors were overwhelmed by fears that far-reaching consequences from such a sharp slowdown in developed economies were still unfolding.
Euphoria about a fresh change in US political leadership after the election of Barack Obama was cruelly short-lived as the reality set in of deteriorating market and economic conditions.
Wall Street institution Goldman Sachs Group, which had early in the financial crisis profited on bets against the US mortgage market, reportedly laid off 3 200 employees this week, and the Bank of England and the European Central Bank were expected to cut interest rates aggressively later on Thursday to shore up their economies.
A growing number of economists even think the Bank of England could lop off a full percentage point from borrowing costs in answer to critics who said the central bank had not done enough to save Britain from the worst financial shock in a generation.
”With the US election over, the eyes of investors are turning to the economy, with a sense that nothing quick can be done to stop the global economic slide,” said Hideyuki Ishiguro, a supervisor at the investment strategy department of Okasan Securities in Tokyo.
The MSCI index of Asia-Pacific stocks excluding Japan fell 7,2% after hitting a three-week intraday high on Wednesday. The gauge has lost 53,7% so far this year, exceeding the 40,8% decline on the All-Country World index
Japan’s Nikkei share average finished 6,5% lower, led by high-profile exporters like Canon and Honda Motor Company that are expected to be affected the most by a steep drop in overseas demand as consumers cut back spending.
Toyota Motor Corporation tumbled 10,4% after a newspaper reported Toyota’s operating profit forecast would be less than half of last year’s.
After the market close, the auto maker slashed its net profit outlook for fiscal year 2008 to 550-billion yen from 1,25-trillion yen as the global financial crisis and fears of recession cut into car sales in key markets.
Hong Kong’s Hang Seng index tumbled 7,1%, led by a 13,3% decline in Cathay Pacific after the airline warned about fuel hedging losses of $360-million, which would hurt 2008 results. — Reuters