Economic Worries Put Global Stock Markets on Edge

passersby electronic stock board tokyo global markets
Koji Sasahara/AP

BANGKOK -- Global stock markets were volatile Thursday, with the Japanese benchmark dropping sharply while those in Europe edged higher, as investors muddled through conflicting signals about the state of the global economy.

Questions about whether the U.S. Federal Reserve would begin to withdraw its monetary stimulus program were also a source of uncertainty for markets.

Japan's Nikkei plummeted more than 5 percent, with investors increasingly doubting the government's economic strategy can extricate the country from years of economic malaise. The yen rose against the dollar, generally regarded as a negative for Japan's powerhouse export sector.

European stocks gained ahead of a meeting between French President Francois Hollande and German Chancellor Angela Merkel in Paris, where they will discuss the introduction of a full banking union for Europe.

Britain's FTSE 100 rose 0.2 percent to 6,643.04. Germany's DAX was marginally higher at 8,339.23. France's CAC-40 advanced 0.4 percent to 3,988.36.

Wall Street appeared headed for a second day of losses, with Dow Jones industrial futures falling 0.2 percent to 15,262. S&P 500 futures declined 0.2 percent to 1,643.30.

Sharp rises in global stock markets this year have been partly fueled by central bank actions to keep interest rates super low to support economic recovery in the U.S., Europe and Japan.

Positive signs of growth in the U.S., including data released Tuesday showing improved consumer confidence and housing prices, have also helped to boost Wall Street stocks to record highs.

However, an improving U.S. economy increases the chance that the Fed might ease back on its massive bond-buying program, known as quantitative easing. The purchase of $85 billion a month in Treasury bonds has helped keep interest rates down and been a boon to stock markets, where investors have fled in search of higher returns.

Investment enthusiasm was also curbed by warnings from the Paris-based Organization for Economic Cooperation and Development, which said Wednesday that Europe's recession risked hurting the world economy. The OECD slashed its forecast for the combined economy of the 17 countries that use the euro, saying it will shrink by 0.6 percent this year, after a 0.5 percent drop in 2012.

"The fact that the OECD added to the gloom yesterday with a raft of downgrades to its growth forecasts has added to the murky economic picture," said Michael Hewson of CMC Markets in a commentary.

Japan's Nikkei 225 index tumbled 5.2 percent to close at 13,589.03. The Tokyo benchmark has shown stomach-churning volatility this month, plunging more than 3 percent on Monday and 7 percent on May 23. However, the Nikkei is up 30 percent for the year.

Hong Kong's Hang Seng shed 0.3 percent to 22,484.31. Australia's S&P/ASX 200 dropped 0.9 percent to 4,930.70. Benchmarks in Singapore, Taiwan, and Indonesia fell more than 1 percent. The Philippines dropped 3.8 percent. South Korea's Kospi was marginally lower at 2,000.10.

Daniel Martin of Capital Economics in Singapore said two concerns are generally weighing on emerging market stocks.

"The first is that the Fed might soon start tapering its assets purchases. The second is that growth in Asia has generally disappointed the market this year, as the global trade recovery has faltered," he said.

One particular pocket of concern is China. A survey by HSBC Corp. (HBC) showed that manufacturing in the world's No. 2 economy slipped in May, a sign the country's fragile recovery might be weakening. The official monthly figure on factory output is due Saturday.

Otherwise, the lack of major data releases for the day deprives investors of reasons to wade into stocks, analysts said.

"A lack of first tier data releases today will limit activity although the tone will likely remain relatively downbeat," said Mitul Kotecha of Credit Agricole CIB in a market commentary.

The latest speculation surrounding the Fed came after the release of positive consumer confidence and housing news on Tuesday. That led investors to fret over the prospect of the Fed reducing its bond-buying.

Japanese export stocks fell as the yen crept higher against the dollar. Honda Motor Corp. (HMC) fell 3.4 percent. Yamaha Motor Co. lost 3.6 percent.

Benchmark oil for July delivery was down 53 cents to $92.60 a barrel in electronic trading on the New York Mercantile Exchange. The contract for the benchmark grade fell $1.88 to close at $93.13 a barrel on the Nymex on Wednesday.

In currencies, the euro rose to $1.2979 from $1.2934 late Thursday in New York. The dollar fell to 100.77 yen from 101.15 yen.

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Everything was fine a few days ago, now we woke up to worries again?

May 31 2013 at 5:32 AM Report abuse rate up rate down Reply

The GOP hates the Fed's Bond BuyBack. saying it's just like printing money. But what about artificially inflating the price of homes? That's not money either! America is just a larger Pyramid scheme. Pyramid schemes work as long aas they keep going. I say lets keep the Bond Buyback going.

May 30 2013 at 8:35 PM Report abuse -1 rate up rate down Reply

were`r d.o.a,

May 30 2013 at 7:56 PM Report abuse +1 rate up rate down Reply

I knew it was to good to be true.

May 30 2013 at 7:55 PM Report abuse +1 rate up rate down Reply

Get your "Garbage stuffed" parachutes ready, CEOs? Save the thousands of jobs and CEOs have to bail out without the "Golden Package." One Portland Oregon female CEO fired herself to save her company and employees. No employees lost their jobs and that company is still productive and the CEO's still out of job but still owns her company.

May 30 2013 at 4:53 PM Report abuse rate up rate down Reply

Here we go, hold on tight.

May 30 2013 at 4:28 PM Report abuse rate up rate down Reply