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[TOKYO] The global equity selloff showed no signs of abating in Asia, with index futures signaling more declines amid mounting concern over the impact of China's slowdown and the commodities slump. Australian bonds rose and the yen held gains as rising volatility fueled demand for haven assets.
Futures on gauges from Japan to Australia dropped as a measure of global stocks tumbled to a two-year low, putting it on track for the worst quarter since 2011. US index futures rallied amid the highest expected price swings for American equities since the start of September, with small-caps and biotechnology companies leading Monday's selloff. The dollar strengthened against its high-yielding peers as more Federal Reserve officials backed a 2015 interest-rate rise, while copper futures extended their slump.
Markets have been whipsawed throughout the northern summer as anxiety over China's economy, which has been stumbling despite stimulus efforts, bubbles under the surface. Glencore Plc. is the latest victim of the slowdown in Asia's largest economy, with waning demand for raw materials hitting the commodity trader's assets. Amid the turmoil, the Fed has been ramping up its rhetoric in favor of a rate hike this year, a move that will likely suppress demand for emerging-market investments as their economies struggle.
"I'm expecting some continued turbulence in the market," John Carey, a fund manager at Pioneer Investment Management Inc. in Boston, which oversees US$244.1 billion globally, told Bloomberg TV. "In the near term, one needs to be careful. The world economy is soft in places and there are risks out there." Stocks Nikkei 225 Stock Average futures were bid for 17,400 in the Osaka pre-market, after closing at 17,690 in Japan on Monday. Contracts on Australia's S&P/ASX 200 Index slid 2 per cent amid the slump in commodities, while futures on the FTSE China A50 Index were down 1.4 per cent in most recent trading.
While markets in Hong Kong resume trading Tuesday after a holiday, South Korea is closed until Wednesday. Taiwan will also remain shut as a typhoon lashes the island.
New Zealand's S&P/NZX 50 Index, the first major stock gauge to start trading each day in the Asian region, retreated 0.9 per cent by 12:53 p.m. in Wellington, set for its steepest one- day drop since Sept 2.
Futures on the Standard & Poor's 500 Index added 0.3 per cent following a 2.6 per cent slump in the US benchmark. Contracts on the Dow Jones Industrial Average and the Nasdaq 100 Index also rose 0.2 per cent.
A 29 per cent slump in Glencore's London-traded stock sent the Bloomberg World Mining Index tumbling to its lowest level in almost seven years Monday. In the US, the Russell 2000 Index of smaller companies reached a fresh low for the year, while the bear market for US biotechnology shares deepened. Global equities are poised for their worst quarter since 2011, with the MSCI All-Country World Index down 11 per cent over the past three months. The gauge slumped 2.1 per cent Monday to its lowest level in two years. The S&P 500 has lost 12 per cent from its record high in May and is down 8.8 percent this quarter.
Yields on New Zealand's 10-year bonds fell a second day, dropping two basis points, or 0.02 percentage point, to 3.31 per cent. Similar maturity Australian debt yielded 2.62 per cent, down seven basis points.
Rates on Treasuries due in a decade fell seven basis points last session, to 2.10 per cent, while two-year yields slipped two basis points to 0.67 per cent.
Credit traders are treating Glencore as if it's already junk, sending the cost of insuring the commodity and mining giant's debt to the highest level since the global financial crisis.
Derivatives traders started demanding upfront payments to protect against a Glencore default, the first time that's happened since 2009, according to data provider CMA. The cost of five-year credit-default swaps jumped so high that they effectively were pricing in 54 per cent odds that the company defaults, CMA data show.
Currencies The yen added 0.1 per cent to 119.85 per dollar after jumping 0.6 per cent on Monday, its biggest one-day gain since Sept 4. The currency typically moves at odds with Japanese stocks and has climbed 2.2 per cent this quarter, the best performance among 16 major currencies tracked by Bloomberg.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after rising 0.1 per cent last session. The Australian and New Zealand dollars were down at least 0.2 per cent.
New York Fed President William C. Dudley said on Monday that the US economy was "doing pretty well" and that the US central bank will probably raise rates later this year. John Williams, head of the San Francisco Fed, also reiterated his expectation that borrowing costs will be boosted in 2015, adding that the jobless rate will probably fall to below 5 per cent this year.
Data Monday showed household spending climbed more than forecast in August, indicating consumers may help the US economy muddle through any global slowdown.