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 European markets followed Asia into the red, with Britain's FTSE,
Germany's DAX and France's CAC all 1.5 percent lower ahead of what
was expected to be an equally rough start for Wall Street.
MSCI's 46-country All World index was flirting with a 3-month low
and emerging market shares were at their lowest in more than six
months.
Souring sentiment toward riskier assets in turn lifted safe-havens
such as the Japanese yen, U.S. Treasuries, German Bunds and gold,
while the pressure was firmly back on oil as both Brent and WTI fell
under $35 a barrel.
"There is a very strong sense of risk-off again," said John Hardy,
head of FX strategy at Saxo Bank also flagging reports that Apple,
one of the world's bellwether tech firms, was set to cut iPhone
production by almost a third.
"It's also about China," Hardy said. "The pace of the currency
weakness, is this a sign that they are losing control a bit?"
Traders and economists fear the yuan's depreciation may mean the
world's second-biggest economy is even weaker than had been expected
and that it could trigger another wave of competitive devaluations
around Asia and in other key economies.
The People's Bank of China surprised on Wednesday by setting the
yuan's official midpoint rate at its weakest level in 4-1/2 years at
6.5314 per dollar. That triggered further selling in the 'offshore'
yuan, which slumped to 6.6956 per dollar, its lowest since trading
began in 2010.
There was more gloomy economic data to digest, too, with a PMI
survey showing China's services sector activity expanded at its
slowest rate in 17 months in December.
State Chinese media meanwhile reported that a selling ban on major
shareholders brought in to help arrest a market crash last summer
would remain in place until the government publishes new rules on
such disposals.
That helped drive China's blue chip shares buck the global
direction, with the CSI300 index closing up 1.75 percent and the
Shanghai Composite finishing 2.3 percent better off.
They were among very few risers, however, as North Korea's
announcement that it had successfully conducted a test of a hydrogen
nuclear device added to geopolitical worries stirred by a row
between Saudi Arabia and Iran.
South Korea's KOSPI and the won both fell and Japan's Nikkei
extended losses to close down 1 percent.
In Europe, a 3.5 percent fall in mining and natural resource stocks
left the FTSEurofirst 300 1.5 percent lower at 1,389 points, its
lowest since mid-December.
OIL PRESSURE
The mood was similarly cautious in currency and bond markets, with
the yuan's accelerated fall dragging down other emerging currencies
like the Malaysian ringgitand Thai baht and the Aussie and Kiwi
dollars.
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The U.S. dollar touched a near three-month low of 118.35 yen while
euro slid to a nine-month trough of 127.38 yen and dipped to $1.0720
at one stage as a top European Central Bank policymaker reiterated
its willingness to keep printing money.
That also helped push yields on German 10-year Bunds to their lowest
since the ECB's last meeting in December, which delivered less in
terms of policy stimulus then most traders had been expecting. The
10-year U.S. Treasury yield fell by about 5 basis points to 2.19
percent.
"European government bond markets are enjoying a (balanced)
environment, with sliding inflation expectations augmenting the
lingering emerging market concerns," Commerzbank rate strategist
Michael Leister said.
Adding to the risk-off mood, crude oil prices hit new 11-year lows
as the face-off between Saudi Arabia and Iran over Riyadh's
execution of a Shi'ite cleric was seen extinguishing any chance of
major producers cooperating to cut production.
Global benchmark Brent crude was trading at $34.93 a barrel at 1230
GMT, down $1.50 or 1.5 percent from the previous day's settlement
and the lowest since 2004. .
U.S. crude futures were down $1 at $34.95 per barrel after slipping
79 cents on Tuesday with China-attuned industrial metal copper down
at a 2-week low of $4,595 a ton.
The talk of Apple slashing iPhone production pushed its shares down
2.44 percent to $102.71 in premarket trading.
Investors will also keep an eye out for a host of U.S. data
scheduled to be released later. The Federal Reserve issues minutes
from its Dec. 15-16 meeting, where it raised interest rates for the
first time in nearly a decade.
The ADP National Employment Report for December, is likely to show
an addition of 192,000 jobs. The data, expected at 8:15 a.m. ET
(1315 GMT), comes ahead of a more comprehensive non-farm payroll
report on Friday.
(Additional reporting by Christine Kim and Yena Park in Seoul; Pete
Sweeney and Samuel Shen in Shanghai; Editing by Toby Chopra)
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