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 Europe's main bourses saw a more steady start to the week but
investors were still shaky after a torrid session in Asia as doubts
continued to mount about Beijing's ability to manage the world's
second-biggest economy.
Wall Street's S&P 500, Dow Jones industrial and Nasdaq were expected
to see 0.3-0.4 percent bounces after last week's worst ever start to
a year though there appeared to be little firm conviction.
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 collapsing to record lows at one
point before bouncing.
Commodities were again on the ropes as Brent crude oil shed 90
cents, or 2.6 percent, to $32.67 a barrel, while U.S. crude was 74
cents lighter at $32.41 as both hovered near last week's 12-year
lows.
"The Chinese situation sets the agenda right now in combination with
oil prices," said Hans Peterson global, head of asset allocation at
SEB investment management.
"Before we see some meaningful transparency from China in its
actions and some stability in the commodity markets, we are not
going to get a stabilization," he added, saying his firm had become
more cautious and been buying up bonds recently.
Europe tried valiantly to deflect the jitters but after an early 1
percent rise, the DAX in Germany and France's CAC both joined
London's FTSE 100, which is heavily exposed to commodities and
China, in negative territory.
Asian trading had been brutal.
MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.8
percent to its lowest since late 2011. China's main indexes slumped
more than 5 percent, Australia 1.2 percent and the Philippines
dropped 4.3 percent.
Beijing was again the epicenter of unease as the People's Bank
confounded analysts by guiding the yuan's midpoint rate sharply
stronger, a move that might calm concerns about a competitive
devaluation but only added to market confusion as to Beijing's
ultimate intent on its currency policy.
The move was an apparent reversal of the midpoint's recent weakening
trend which included the biggest one-day drop in the guidance rate
in five months on Jan. 7.
"Authorities are reluctant to let market forces rule, which along
with their indecisiveness and lack of transparency is exacerbating
uncertainty," said Tapas Strickland, an economist at National
Australia Bank.
"Understandably, amidst this global markets are selling Chinese
policymaker's ability to control their economy."
RAND SACKED
The uncertainty about the yuan only heightened tensions ahead of
China trade data on Wednesday where declines are expected in exports
and imports, underlining just how anemic world trade flows are right
now.
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Both the Dow and the S&P 500 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 3-, 7-, and 10-year U.S. Treasuries all had their biggest
weekly declines since early October, while five-year yields dropped
by the most since Sept. 2013.
The gains fizzled on Monday with U.S. 10-year Treasury futures off a
couple of ticks, though Fed fund futures were again pricing in a
slightly shallower upward path for official interest rates.
European bonds also saw some minor selling. There was additional
pressure on Spain after Catalonia's parliament swore in the fiery
Carles Puigdemonta as its new separatist leader.
In currency markets, the main early news was the yen which is often
favored in times of stress as Japan remains the world's largest
creditor nation.
The dollar initially fell half a yen to a near five-five month low
of 116.70 yen, before steadying around 117.50.
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, before tracking back to 16.5945. That was still up
from 16.3150 late on Friday.
Among the other key emerging market currencies, the Russian rouble
opened almost 2 percent weaker, continuing to fall along with oil
prices, while back in the majors, the euro started firmer but
softened to $1.09 as the dollar index hit 98.465.
(Additional reporting by Wayne Cole in Sydney; Editing by Toby
Chopra)
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