Asian shares skidded on Wednesday as investors fretted about weak global growth and creeping deflation, undermining commodities and boosting the demand for safe-haven sovereign debt.
Disappointing manufacturing surveys from China and the UK combined with downgrades to growth and inflation forecasts from the European Commission sour the mood.
Indeed, April factory data across Asia has disappointed in the past few days.
“After a bit of lift in March, which raised hopes for a sustained acceleration in activity, momentum again turned last month,” said Frederic Neumann, co-head of Asian economics research at HSBC.
“Asia's big markets continue to disappoint: Japan sank further, China relapsed, and India slipped.”
Equities were cold-shouldered in the rush to safe-haven assets and MSCI's broadest index of Asia-Pacific shares outside Japan dropped 1.1 per cent.
Deflation risks
Tuesday's rate cut from the Reserve Bank of Australia (RBA), the first in a year, further underlined how the danger of deflation was spreading worldwide.
“Global yields fell sharply after the RBA cut gave a low inflation signal to markets,” said analysts at Australia and New Zealand bank in a note.
“Concerns include a weaker company earnings outlook for banks, utilities, and commodity-producing companies. Sluggish economic growth remains a concern too, with many central banks reaching the limits of what can be done.”
Bond yields
In Europe, yields on German government debt recorded their biggest daily fall so far this year, with 10-year paper down 8 basis points to just below 0.20 per cent.
Yields on US 10-year Treasury notes fell 7 basis points to a two-week trough of 1.798 per cent. They had been as high as 1.94 per cent last week.
Dollar pares losses
South Korean stocks slipped 0.6 per cent and Australia's main index lost 1 per cent. Stocks in Shanghai dipped 0.2 per cent in thin trade. Japanese markets were closed for a holiday.
On Wall Street, the Dow had ended Tuesday down 0.78 per cent, while the S&P 500 lost 0.87 per cent and the Nasdaq 1.13 per cent.
US auto sales
Even a surprisingly upbeat report on US auto sales failed to lift the mood, with shares of car makers falling on worries the industry's recovery was running out of steam.
The flight from risk also played out in forex markets with investors favouring currencies from economies with large current account surpluses such as Japan and the euro zone.
Currency movement
The yen did run into profit-taking on Wednesday, which dragged it back to 107.30 per dollar from an 18-month peak of 105.55. But that followed a 5 per cent gain last week when the Bank of Japan refrained from offering more stimulus.
The euro also faded a bit to $1.1477, having stretched as far as $1.1616 on Tuesday.
The US dollar fared better against commodity-linked currencies, with the Australian dollar taking a particularly hard hit after the cut in domestic interest rates.
The Aussie was down at $0.7490 after falling a whopping 2.4 per cent on Tuesday. Against a basket of currencies, the US dollar was 0.3 per cent firmer at 93.220.
All the talk of deflation weighed on commodity markets, where gold, copper and iron ore all lost ground.
Crude oil
Oil prices wavered ahead of a US government report due on Wednesday likely to cite record high crude stockpiles.
Brent crude dipped 7 cents to $44.90 a barrel, while US crude added a single cent to $43.66.