Asian shares performed poorly on Friday, weighed down by doubts about the strength of the U.S. economy and by a weak performance on Wall Street, which pushed bonds higher.
The MSCI’s index of Asia-Pacific shares outside Japan was down by 0.1 percent, while gains in some regional currencies offset falls in share prices in local currency terms.
The increase in May’s U.S. consumer spending shown in the data released on Thursday was smaller than expected. This raised concern over the health of the U.S. economy following the surprisingly weak first quarter Gross Domestic Product data.
Nikkei, the Japan’s benchmark dropped 1.5 percent and regional markets were posting losses, with the exception of Mumbai and Wellington.
Experts expect European shares to stabilize after a drop to one-month lows on Thursday, with spreadbetters hoping for gains of 0.1 percent in both Britain’s FTSE and Germany’s DAX.
The Gross Domestic Product data showed that the U.S. economy contracted at a 2.9 percent annualized pace in the first quarter. This is the worst performance in five years.
The weak data is beginning to erode investor’s confidence in the U.S. economy which they thought was heading for a modest but robust recovery. U.S. growth this year is seen possibly falling short of the expected 2 percent.
“People are assessing where they think their second- and third-quarter, fourth-quarter, GDP estimates are going to be,” said Wilmer Stith who is a co-manager in Baltimore of the Wilmington Broad Market Bond Fund.
“Even for those that are optimistic, it’s like getting that ‘F’ in college in that first test; it’s harder to raise that average up” Wilmer Stith quipped.
S&P 500 slipped 0.1 percent Thursday, while the FTSEurofirst 300 index hit a one-month low before closing down 0.1 percent.
Losses in Western markets were led by financial shares after the New York’s attorney general Eric Holder filed a law suit against Barclays on security fraud. He accused Barclays of giving an unfair advantage to high-frequency traders.
Comments from James Bullard, the president of the St. Louis Fed were also said to have triggered selling in shares. He said that raising interest rates by the end of the first quarter of next year would be appropriate. But traders said his remarks were just used as an excuse for profit-taking in stocks, this is because U.S. bonds made gains rather than losses.
In fact, the 10-year U.S. Treasuries yield fell to a four-week low of 2.511 percent in Asia. And the ten-year German Bund yields also dropped to a one-year low of 1.238 percent on June 26 in Europe, where growth is even weaker than in the United States.
The U.S. dollar index stood at 80.102, slightly above the low of 80.091, holding close to one-month lows hit on June 25.
The currency that performed well was the Canadian dollar. It rose to a six-month high in trade against the U.S. dollar after data showing inflation at a 27-month high raised doubts over how long the Bank of Canada will be able to stick with its neutral monetary policy stance.
The Canadian currency traded as high as C$1.0684 on the U.S. dollar on June 26 and last stood at C$1.0693.
The euro was little changed at $1.3628, while the yen hit a five-week high of 101.315 yen against the dollar.