Unease over the global economy engulfed commodities and dented Asian equities on Wednesday, while the euro loitered near nine-year lows as investors bet the European Central Bank was just a week away from launching a new stimulus campaign.
As if the plunge in oil prices is not enough of a worry for global policymakers, copper futures dived 6.2 per cent to $5,499 a tonne when major chart support cracked and triggered a host of stop-loss sales.
The metal is often considered a barometer of industrial demand, so the slump leant extra gravitas to news the World Bank had cut its 2015 growth forecasts blaming sluggishness in the euro zone, Japan and some major emerging economies.
“The global economy is at a disconcerting juncture,’’ World Bank chief economist Kaushik Basu told reporters. “It is as challenging a moment as it gets for economic forecasting.’’
Asian markets
That was a challenging background for equities and MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3 per cent.
Australia's main index fell 0.9 per cent, with mining shares taking an added blow from the drop in copper.
Seeking to support growth, Japanese Prime Minister Shinzo Abe’s Cabinet approved a record $812-billion budget, while cutting new borrowing for a third straight year.
The share market seemed underwhelmed, however, and the Nikkei lost 1.2 per cent.
Wall Street
Falls in materials and energy shares had seen Wall Street end Tuesday with minor losses, and the omens were not bright for Wednesday with S&P EMINI futures down 0.3 per cent.
The Dow eased 0.15 per cent, while the S&P 500 dipped 0.26 per cent and the Nasdaq 0.07 per cent.
ECB bond-buying
The dollar outpaced the euro on the back of upbeat US economic data and after two European Central Bank (ECB) officials fuelled expectations that the bank would launch a programme at its January 22 policy meeting to buy government bonds.
The single currency was stuck at $1.1780 after reaching a low not seen since December 2005 at $1.1753. Against the yen, the euro slumped to its lowest in over two months around 138.17.
Market attention now turns to the European Court of Justice (ECJ), which is expected to provide a non-binding opinion on the legality of an ECB bond-buying programme later on Wednesday.
Money for nothing
The pressure for policy action has grown intense as falling oil prices pulled consumer prices into negative territory across the euro zone last month.
So far this week, Brent has lost 7 per cent and US crude 5 percent. On Wednesday, Brent gave up early gains and fell another 40 cents to $46.19 per barrel, while US crude shed 46 cents to $45.43.
UK inflation
The impact was clear in the UK where inflation halved to just 0.5 per cent in December, the lowest in over 14 years. That only reinforced market expectations the Bank of England would not be able to hike rates until 2016 at the earliest.
Likewise, investors are wagering the Federal Reserve will find it hard to start tightening in the middle of the year, as some policy members have suggested.
In just the past three weeks, Fed fund futures have priced out 25 basis points of hikes for this year and now see just one move to 0.5 per cent by Christmas.
The risk of low inflation for longer has in turn pulled down bond yields globally, with five-year debt in Germany and Japan now paying nothing at all.
One side effect of plunging bond yields is to make gold more attractive as an alternative investment.
Since gold does not pay a return, an opportunity cost for holding it is the yield forgone on safe-haven bonds. Now, that cost has diminished to the point where buying gold offers the same return as lending money to Germany for five years.
The yellow metal was a shade softer at $1,230.00 an ounce on Wednesday after touching a three-month peak.