World stocks, oil prices fall after grim economic data

World stocks, oil prices fall after grim economic data


LONDON

Tuesday, December 2, 2008

WORLD stocks ended six consecutive days of gains yesterday and oil prices tumbled, boosting flows into the low-yielding yen as data showing slumping manufacturing activity in China and Europe fanned concerns over the economy.

US Treasury prices rose across the board, driving the benchmark 10-year yield to a fresh five-decade low as investors flocked to safe and liquid government bonds.

A closely-watched survey showed eurozone manufacturing activity sank to a level not seen in its 11-year history in November. The grim reading reinforced expectations the European Central Bank would cut interest rates later this week to 2.5 per cent or even lower.

A similar survey from China also showed the manufacturing sector deteriorated.

"The data is just so terribly poor that it's going to be difficult for any kind of period of sustained uptrend in confidence," said Derek Halpenny, European head of global currency research at BTM UFJ.

"Until we're through the deterioration in the data then the likelihood is that risk aversion will remain elevated and we'll see renewed interest in lower-yielding currencies."

The MSCI world equity index fell 1.1 per cent after rising 12 per cent last week.

The FTSEurofirst 300 index of leading European shares fell three per cent following a gain of more than 13 per cent last week, with banks and mining companies leading the way down.

Equity markets had perked up last week after the US government rescued banking giant Citigroup, the Federal Reserve said it would buy up to US$800 billion of mortgage-related and consumer debt and China cut interest rates.

Trading was subdued due to the US Thanksgiving holiday last week, but fund tracker EPFR Global said there were sizeable inflows into European equity funds in the week.

Oil dropped by more than five per cent to US$51.57 a barrel after producer cartel Opec decided to delay a decision on a third supply cut until its next meeting later in December, as economic woes squeeze oil demand.

The low-yielding yen rose around 1.8 per cent to ¥93.78, only a few yen away from the level where finance chiefs from the Group of Seven issued a warning about excessive yen strength in October.

The yuan also tumbled against the US dollar.

Reuters