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By Wayne Cole
SYDNEY (Reuters) – Asian equity markets were painted red on Thursday, as concerns over the recession dragged down bond yields around the world, eclipsing the central bank's attempts to calm its nerves.
Sterling was also the victim of a new blues on Brexit after a series of votes in the British parliament failed to come up with any plan to handle the divorce.
The MSCI's largest share of Asia-Pacific shares outside Japan slid 0.2% at the start of trade, while South Korea lost 0.7%.
The Japanese Nikkei lost 1.6%, while the E-Mini futures for the S & P 500 lost 0.4%.
On Wall Street, the Dow Jones ended Wednesday down 0.13%, while the S & P 500 lost 0.46% and Nasdaq 0.63%.
Fearing that the reversal of the US Treasury curve indicates a future recession, 10-year yields fell to their lowest level at 15 months at 2.35%.
The latest downturn was led by German banks where 10-year yields plummeted deeper into negative territory after European Central Bank President Mario Draghi said that a rise in rates of Interest may still be delayed.
Plans to mitigate the negative effects of negative interest rates could also be considered, suggesting that the central bank was preparing for a prolonged period below zero.
This change was closely followed by a dovish surprise from the Reserve Bank of New Zealand, which dropped its neutral bias to argue that the next rate move would likely be down.
Yields in New Zealand and neighboring Australia have rapidly tumbled to record lows.
The RBNZ explicitly cited all the easing measures taken by the other central banks to justify its recovery as they had exerted unwanted upward pressure on the local dollar.
The recovery goes to the global
This is one of the reasons why the markets are betting that the Reserve Bank of Australia will also be forced to lower its rates simply to prevent its currency from appreciating. The easing of policies then becomes a self-fulfilling cycle throughout the world.
"The continuous dovish movement of the G7 central banks, the continued support of the Chinese authorities and the decision of the RBNZ will keep up the pressure on the RBA so that it also acts in the same direction, reluctantly," said Su-Lin Ong, Australian Chief Executive Officer and New Zealand Strategy at RBC Capital Markets.
"It is essentially a whole political cycle".
The RBNZ's action had the desired effect on its currency, which amounted to 0.6786 USD after a dive of 1.6% overnight. The Aussie also fell 0.7% to $ 0.7082.
Similarly, Draghi's comments bring the euro down to $ 1.1250 and leave the US dollar firmer against the basket of its competitors at 96.967.
Only the yen held up thanks to its safe haven status and was stable at $ 110.31 for a dollar.
Sterling had his own problems when British Prime Minister Theresa May offered to resign to have Parliament sign its agreement on the European Union, leaving uncertainty over the Brexit process.
That left the pound lower at $ 1.3165 after being as high as $ 1.3269 at one point on Wednesday.
In commodities markets, palladium received a lot of attention after falling 7% on Wednesday, as its meteoric rally finally ended in profit taking. Gold was relatively calm at $ 1,310.32 an ounce.
Oil prices posted modest losses after data showed that US crude inventories rose more than expected last week as a Texas chemical spill hampered exports.
US crude lost 12 cents to 59.29 dollars a barrel, while Brent crude lost 7 cents to 67.16 dollars.
(Edited by Sam Holmes)
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