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Asia shares drop as weak US data triggers economy fears | Asia shares drop as weak US data triggers economy fears |
(40 minutes later) | |
Asian markets have dropped after weaker-than-expected jobs data from the US triggered concerns about the health of its economic recovery. | Asian markets have dropped after weaker-than-expected jobs data from the US triggered concerns about the health of its economic recovery. |
Japan's Nikkei 225 index fell 2.1%, South Korea's Kospi dropped 2.7% and Hong Kong's Hang Seng shed 2.4%. | |
Data out late on Friday showed that the US economy added 69,000 jobs in May, the smallest number created since May 2011. | Data out late on Friday showed that the US economy added 69,000 jobs in May, the smallest number created since May 2011. |
Analysts said the data indicated the US economic recovery was losing steam. | Analysts said the data indicated the US economic recovery was losing steam. |
"It is an admission of what the markets had been fearing," Peter Esho, chief market analyst at City Index told the BBC. | "It is an admission of what the markets had been fearing," Peter Esho, chief market analyst at City Index told the BBC. |
"There was a lot of anecdotal evidence that the US economic recovery had been flattening out and now we have got a confirmation of that." | "There was a lot of anecdotal evidence that the US economic recovery had been flattening out and now we have got a confirmation of that." |
'Totally different animal' | 'Totally different animal' |
The weak US jobs figures are the latest in a series of bad news for the global economy. | The weak US jobs figures are the latest in a series of bad news for the global economy. |
Also on Friday, China reported that manufacturing activity in its biggest factories hit the lowest point this year amid weak domestic demand. | Also on Friday, China reported that manufacturing activity in its biggest factories hit the lowest point this year amid weak domestic demand. |
That added to fears about a slowdown in China's overall economy, the world's second-largest and one of its biggest drivers of growth in recent years. | That added to fears about a slowdown in China's overall economy, the world's second-largest and one of its biggest drivers of growth in recent years. |
Last week, data out of India showed that its economy grew at its slowest pace in almost a decade, during the first three months of this year. | Last week, data out of India showed that its economy grew at its slowest pace in almost a decade, during the first three months of this year. |
To add to those woes, the sovereign debt crisis in the eurozone has also escalated in recent months. | To add to those woes, the sovereign debt crisis in the eurozone has also escalated in recent months. |
Analysts said that all these factors were making investors nervous that global growth may slow even further. | Analysts said that all these factors were making investors nervous that global growth may slow even further. |
"It is a totally different animal that we have never seen before," said Hans Goetti, chief investment officer at Finaport. | "It is a totally different animal that we have never seen before," said Hans Goetti, chief investment officer at Finaport. |
"We have literally thrown everything, including the kitchen sink, at the economy but nothing is working." | "We have literally thrown everything, including the kitchen sink, at the economy but nothing is working." |
Double whammy | Double whammy |
Japanese stocks have been among the worst hit this year. | Japanese stocks have been among the worst hit this year. |
Not only have fears of a global slowdown made investors worried about a falling demand for Japanese exports, there are concerns about profits of exporters being hit in wake of a strengthening yen. | Not only have fears of a global slowdown made investors worried about a falling demand for Japanese exports, there are concerns about profits of exporters being hit in wake of a strengthening yen. |
The Japanese currency is seen by many as a safe-haven asset in times of uncertainty. As a result many investors have been selling riskier assets and turning to the yen. | The Japanese currency is seen by many as a safe-haven asset in times of uncertainty. As a result many investors have been selling riskier assets and turning to the yen. |
It has risen almost 7% against the US dollar since 15 March. | It has risen almost 7% against the US dollar since 15 March. |
A strong yen does not bode well for Japanese exporters as it makes their goods more expensive to foreign buyers and also hurts profits. | A strong yen does not bode well for Japanese exporters as it makes their goods more expensive to foreign buyers and also hurts profits. |
"The evolving global slowdown amidst global sovereign financing dilemmas has pushed the yen back into 'super yen' territory, signalling extreme pressures," said Richard Hastings of Global Hunter Securities. | "The evolving global slowdown amidst global sovereign financing dilemmas has pushed the yen back into 'super yen' territory, signalling extreme pressures," said Richard Hastings of Global Hunter Securities. |
The strength of the currency coupled with the global economic issues has seen the benchmark Nikkei 225 index slide more than 19% since late March. | The strength of the currency coupled with the global economic issues has seen the benchmark Nikkei 225 index slide more than 19% since late March. |
On Monday, Japan's broader Topix index shed lost 2.1% to 693.35 points, a 28 year-low. | On Monday, Japan's broader Topix index shed lost 2.1% to 693.35 points, a 28 year-low. |
Further stimulus? | Further stimulus? |
Analysts said that given the current global economic conditions, they expected policymakers, especially in the US to take fresh stimulus measures. | Analysts said that given the current global economic conditions, they expected policymakers, especially in the US to take fresh stimulus measures. |
"Clearly something needs to be done and all eyes will on the Federal Reserve on what actions it takes," said City Index's Mr Esho. | "Clearly something needs to be done and all eyes will on the Federal Reserve on what actions it takes," said City Index's Mr Esho. |
"The magnitude of how aggressive the response is, is what will drive the market direction going forward." | "The magnitude of how aggressive the response is, is what will drive the market direction going forward." |
The Federal Reserve, which is the US central bank, has used quantitative easing (QE), a process that sees the central bank pump money directly into the economy, in the past in an attempt to boost consumption and growth. | The Federal Reserve, which is the US central bank, has used quantitative easing (QE), a process that sees the central bank pump money directly into the economy, in the past in an attempt to boost consumption and growth. |
The central bank usually does this by buying financial assets such as government and corporate bonds - using money it has simply printed. | The central bank usually does this by buying financial assets such as government and corporate bonds - using money it has simply printed. |
The hope is that when it pays to buy these assets "new" money enters the financial system and boosts money supply which in turn may help boost demand. | The hope is that when it pays to buy these assets "new" money enters the financial system and boosts money supply which in turn may help boost demand. |
The Federal Reserve has done this twice since the global financial crisis broke out. | The Federal Reserve has done this twice since the global financial crisis broke out. |
However, some analysts warned that while there is talk of another round of QE taking place, it may not have the desired effect. | However, some analysts warned that while there is talk of another round of QE taking place, it may not have the desired effect. |
"The problem with QE is that it has a big impact on assets prices but not on the overall economy," said Mr Goetti of Finaport. | "The problem with QE is that it has a big impact on assets prices but not on the overall economy," said Mr Goetti of Finaport. |