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 ECB policymaker Ewald Nowotny's warning of a "massive weakening" of
the economy followed a rating downgrade in the bloc's third largest
economy Italy, buoying bond markets as investors positioned for a
fresh round of central bank stimulus.
Europe's index of top shares, the FTSEurofirst, dipped 0.6 percent,
as weakening Chinese trade and data showing Japan's recession to be
deeper than initially expected fed global growth fears.
Wall Street was set to open down around 0.3 percent.
But the dollar was robust, extending gains after Friday's strong
U.S. labor data to weigh on oil prices already crushed by
predictions that oversupply would keep building until next year.
Brent crude fell to a five-year low [O/R].
Italian government bond markets suffered, with yields shooting
higher after S&P downgraded the country's credit rating to just one
notch above junk on Friday, underscoring the limited progress made
under Prime Minister Matteo Renzi's economic reforms. [GVD/EUR]
But all other euro zone borrowing costs fell, with benchmark German
yields hitting a day's low after Nowotny said the bloc's tepid
recovery had pushed the European Central Bank to look more closely
at a sovereign bond quantitative easing program.
"Nowotny's comments have just reinforced the market's view that the
ECB is inching towards outright QE, we think probably in January,"
said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UFJ in
London.
DOLLAR POWER
The gathering strength of the dollar, against which the euro fell
0.2 percent to a 2-1/2-year low, also weighed heavily on emerging
markets on Monday.
The rouble one of the headline losers, giving up 2 percent as it
fell back towards record lows hit last week.
Symptomatic of problems affecting many developing markets, there are
worries that Russia will jack up interest rates to as much as 12
percent this week in a bid to fend off a full-blown financial
crisis.
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Earlier in Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan closed down 0.25 percent. Tokyo's Nikkei was up 0.1
percent with the downward revision to Japan's GDP neutralizing much
of the positive impact from a weaker yen. South Korea's Kospi lost
0.2 percent while Singaporean and Malaysian shares also dipped.
The Shanghai composite index gained 2.9 percent after the downbeat
Chinese data added to hopes that China will implement more stimulus
to shore up its economy.
Dariusz Kowalczyk, economist at Credit Agricole in Hong Kong, noted
that the year-on-year drop in China's imports was the biggest since
the Lehman crisis, barring the volatile Lunar New Year-related
period.
"This is partly a reflection of lower commodity prices and base
effects, but ...we have to assume that poor domestic demand has
played a part. This means that pressure will rise on the government
to do more to stimulate growth," he said.
The Australian and the New Zealand dollars, both sensitive to the
economic fortunes of China, touched new 4-1/2 year and 2-1/2 year
lows, respectively.
The disappointing Chinese and Japanese data contrasted sharply with
Friday's U.S. non-farm payrolls that showed employment in November
surged by 321,000, easily topping forecasts for 230,000 new jobs.
(Additional reporting by Patrick Graham in London, Blaise Robinson
in Paris and the China economics team; Editing by Toby Chopra and
John Stonestreet)
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