Shares slump to four-month low as sell-off continues

World shares slumped to near a four-month low today as signs of a slowdown in the US economy aggravated the anxiety caused by a sell-off in emerging markets.

A report showing US factory activity was weaker than expected had caused both the dollar and global equities to fall today.

European investors remained anxious on Tuesday after another session of sustained selling in Asia. Futures prices pointed to a 0.3 per cent rebound for Wall Street later, but a mid-morning attempt at a stabilisation failed in Europe.

The benchmark FTSEurofirst index fell 0.4 per cent and headed for a third day of declines. And Europe looked almost rosy compared with Asia.

Tokyo’s Nikkei plunged 4 per cent in its worst day since June, cementing its position as the worst performer in developed markets in 2014.

MSCI’s emerging-market index dropped 1.4 per cent, putting its losses since late October at almost 12 per cent.

“It does look as if developed-market equities are playing catchup with emerging markets,” Societe Generale strategist Kit Juckes said. “The dollar has somewhat run out of steam, and I suspect the focus today may well be on yen strength as well as how much further the equity market falls can go.”

With a flight to safety going on, German government bonds , considered to be one of Europe’s most secure investments, saw prices hit a 6-month high.

But the main focus of the currency market remained the U.S. dollar’s contest with the yen. Two factors were at play. US bond yields fell after the weak data hit the dollar, and the Nikkei’s plunge pushed up the yen. The Nikkei and yen often see-saw: as one goes up, the other goes down. The US dollar appeared to be recovering, though. It was last up 0.3 per cent at 101.27 yen, after hitting its lowest level since November yesterday at 100.77. Another round of strong UK construction data also left sterling looking spritely at $1.6340. Talk of policy easing by the ECB at its monthly meeting on Thursday held the euro back at $1.3509.

The stock market sell-off left MSCI’s 45-country, all-world index at its lowest since October and saw the VIX, the market’s fear seismograph, jump to its highest since June. It also boosted the safe-haven appeal of gold. Spot gold was steady on at $1,258.84 an ounce, after gaining 1.1 per cent yesterday.

The Nikkei’s 4 per cent dive cemented its position as 2014’s worst-performing major market. It has shed 14 per cent of last year’s 50 per cent boom. By comparison, the US benchmark S&P 500 is down 5.8 per cent. The FTSEurofirst 300 fell 3.3 per cent. “With the main European indices down around 7 percent (since peaks), chatter on trading desk is about whether we are in for a ‘10 percent’ correction,” Jonathan Sudaria, a dealer at Capital Spreads in London, said in emailed comments. “The bears have a seemingly easy target within reach and the remaining bulls will want to get out of the way.”

Agencies