Asian stocks were on the defensive on Friday, unable to hold early gains as solid US data gave only a temporary boost and failed to dispel the underlying worries about slowing world economic growth.
The Nikkei share average led the losses, falling 1.3 per cent on the day and 5.0 per cent on the week, its biggest weekly fall in six months.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 per cent, on course to log its sixth straight week of losses with a fall of 0.9 per cent so far this week.
Spreadbetters see mixed openings on European bourses. Germany’s DAX is seen starting up to 0.1 per cent higher, while France’s CAC 40 could be 0.3 per cent and Britain’s FTSE 0.2 per cent.
Investors rattled
A possible recession in Europe, a floundering economy in Japan, a slowdown in China and the Ebola virus outbreak have conspired to rattle investors, triggering a level of volatility not seen in years.
Some US data published on Thursday was encouraging but was not enough to dispel concerns.
The number of Americans filing new claims for jobless benefits fell to a 14-year low last week and industrial output rose sharply in September after a fall in the previous month.
“We need to see a period of better data from the US, and especially Europe, for markets to really calm and volatility to cool,’’ said Chris Weston, chief market strategist at IG Markets in Melbourne.
US stocks
US stocks had another choppy session on Thursday but managed to stay above multi-month lows hit the previous day, with the S&P 500 Index ending flat.
The Volatility Index, viewed as a gauge of investor fears, eased to 25.2 percent from a 2 1/2 year high above 31 per cent hit on Wednesday.
“I expect market volatility to gradually come down. Loss-cutting trades will come to an end soon after a hectic week and markets will be looking to what kind of policy options major countries can adopt now,’’ said Makoto Noji, senior strategist at SMBC Nikko Securities.
Also helping markets were comments from James Bullard, head of the St. Louis Federal Reserve Bank. Bullard had said on Thursday the Fed may want to keep up its bond buying stimulus for now, given a drop in inflation expectations.
Fed bond buying
But as solid US data in recent months ironically does not justify the Fed keeping stimulus in place, most investors expect the Fed will wrap up its bond buying at the end of this month, as scheduled.
The US dollar also recovered, with the dollar index stabilising at 84.950, off a three-week low of 84.472 hit on Wednesday.
“It was largely a cooldown session, spiced up by solid US data and a surprisingly dovish comment from Fed member Bullard,’’ analysts at CitiFx wrote in a note to clients.
The euro gave back some of Wednesday's gains on the greenback to be at $1.2811, off this week’s high of $1.2887.
The common currency was undermined by a sharp sell-off in periphery euro zone countries debt.
Greek govt bonds
Greek government bonds were the hardest hit, with 10-year yields rising to nearly 9 per cent, while Spain missed its target at a bond auction due to weak demand from investors.
The reversal of money flows into these debt markets raises fresh headaches for European policy makers as they struggle to deal with threat of deflation and recession.
Euro zone crisis
Deflation has already hit five peripheral euro zone countries in September, including Italy and Spain, while a string of surprisingly weak German data showed the euro zone’s power house is losing momentum.
Brent crude was up close to a dollar to above $86 a barrel, but the global oil benchmark is still headed for a fourth weekly loss in a row, having fallen to a fresh four-year low on Thursday, as excess supply and weak fuel demand from Europe to China pummelled prices.
Mainland Chinese shares were also set to post their biggest fall in four months on worries over the economy and as investors brace for a landmark trading link between Hong Kong and Shanghai bourses, which will at last let global investors trade Shanghai-listed shares directly, via the Hong Kong exchange.
The trading link is expected to start on October 27.
There was little in the way of market-moving data out of Asia on Friday. Later in the day, European Central Bank member Benoit Coeure speaks on 'Have we learnt anything from the crisis?' and Federal Reserve Chair Janet Yellen speaks on 'Economic opportunity' at separate events.