Asian share markets swept lower Monday after Wall Street suffered its worst starting week in history and doubts over Beijing’s economic competence sent investors into the arms of the safe-haven yen and sovereign bonds.
The absence of Tokyo for a holiday only made liquidity even harder to come by, heightening volatility. Currency markets saw some wild swings with the South African rand ZAR=D3 collapsing to record lows at one point before bouncing.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS sank 2 percent, as did Australia’s main index . E-mini futures for the S&P 500 ESc1 were down 0.7 percent in a sizable move for Asian hours.
Commodities remained on the ropes as Brent crude oil LCOc1 shed another 74 cents to $32.81 a barrel. U.S. crude CLc1 was quoted 71 cents lighter at $32.45.
China was again the epicenter of unease as the People’s Bank confounded analysts by guiding the yuan sharply stronger, a move that might calm concerns about a competitive devaluation but only added to market confusion as to Beijing’s ultimate intent.
Perceived missteps by the authorities in managing the share and currency markets have led to concerns Beijing might lose its grip on economic policy too.
That heightened tensions ahead of trade data on Wednesday where further declines are expected in exports and imports, underlining just how anemic world trade flows are right now.
Both the Dow .DJI and S&P 500 .SPX had their worst five-day starts in history last week, and the corporate news flow is unlikely to get any cheerier with the coming results season expected to be a tough one.
S&P 500 earnings are forecast to have dropped 4.2 percent in the fourth quarter, a second straight quarterly decline led by the hard-hit energy and materials sectors.
The pain in stocks and worries over China even outweighed the positive impact of December’s upbeat U.S. payrolls report and burnished the appeal of higher-rated government bonds.
Yields on 10-, 7-, and 3-year U.S. Treasuries all had their biggest weekly declines since early October last year, while five-year yields dropped by the most since Sept. 2013.
The gains continued on Monday with U.S. 10-year Treasury futures TYc1 up a solid 6 ticks, while Fed fund futures <0#FF:> were pricing in a shallower upward path for rates.
In currency markets, the main beneficiary was the yen which is often favored in times of stress as Japan remains the world’s largest creditor nation.
The dollar fell half a yen to a near five-five month low of 116.70 yen JPY= in early trade, before steadying around 117.13.
Dealers said Japanese investors seemed to be bailing out of long positions in the South African rand by selling rand for dollars and then those dollars for yen.
That saw the dollar surge as much as 10.3 percent at one stage to 17.9950 rand ZAR=D3, before tracking back to 16.7205. That was still up sharply from 16.3150 late on Friday.
The euro was well supported at $1.0940 EUR= while the dollar index dipped 0.26 percent to 98.281 .DXY.