Global stock markets were volatile Thursday, with the Japanese benchmark dropping sharply while those in Europe edged higher, as investors muddled through conflicting signals about the state of the global economy.
Questions about whether the US Federal Reserve would begin to withdraw its monetary stimulus programme were also a source of uncertainty for markets.
Japan’s Nikkei plummeted more than 5%, with investors increasingly doubting the government’s economic strategy can extricate the country from years of economic malaise. The yen rose against the dollar, generally regarded as a negative for Japan’s powerhouse export sector.
European stocks gained ahead of a meeting between French President Francois Hollande and German Chancellor Angela Merkel in Paris, where they will discuss the introduction of a full banking union for Europe.
Sharp rises in global stock markets this year have been partly fueled by central bank actions to keep interest rates super low to support economic recovery in the US, Europe and Japan. Positive signs of growth in the US, including data released Tuesday showing improved consumer confidence and housing prices, have also helped to boost Wall Street stocks to record highs.
However, an improving US economy increases the chance that the Fed might ease back on its massive bond-buying program, known as quantitative easing. The purchase of $85bn a month in Treasury bonds has helped keep interest rates down and been a boon to stock markets, where investors have fled in search of higher returns.
Investment enthusiasm was also curbed by warnings from the Paris-based Organization for Economic Cooperation and Development, which said Wednesday that Europe’s recession risked hurting the world economy. The OECD slashed its forecast for the combined economy of the 17 countries that use the euro, saying it will shrink by 0.6% this year, after a 0.5% drop in 2012.
“The fact that the OECD added to the gloom yesterday with a raft of downgrades to its growth forecasts has added to the murky economic picture,” said Michael Hewson of CMC Markets in a commentary.
Daniel Martin of Capital Economics in Singapore said two concerns are generally weighing on emerging market stocks.
“The first is that the Fed might soon start tapering its assets purchases. The second is that growth in Asia has generally disappointed the market this year, as the global trade recovery has faltered,” he said.