Asian shares tumbled today as investors scrambled to adjust to a rapid downgrade in the outlook for U.S. and global economic growth, but later staged a sharp rebound from early lows, helping cushion expected losses in Europe.
U.S. S&P 500 index futures pulled back sharply from earlier lows and crept into positive territory, while European index futures .STXEc1 also pared early losses and were trading down around 0.5 percent.
Major indexes in Asia slumped in early trade following a drop of more than 6 percent on Wall Street on Monday in the first trading session since the historic downgrade of the United States’ AAA credit rating by Standard & Poor’s.
Many market watchers fear the move will exacerbate the U.S. economic slowdown by further undermining business and consumer confidence, possibly tipping the country back into recession.
Tokyo’s Nikkei .N225 closed down 1.7 percent, having been down more than 4 percent at one stage, and MSCI’s broadest index of Asia Pacific shares outside Japan was down 1.9 percent, after tumbling more than 6 percent earlier.
“Panic selling is generally followed by quick recoveries however the past two days have been driven more from thoughtful risk aversion … indicating that this downturn may be more cyclical and potentially long-term in nature.”
While the U.S. downgrade late on Friday was the most obvious blow to confidence, investors have also been spooked by data suggesting the U.S. economy was stalling and Europe’s ever-worsening sovereign debt crisis.
There are also concerns about China’s inflation rate, which analysts fear could curb Beijing’s ability to stimulate demand to offset a global slowdown.
“The macroeconomic picture outside of Asia is bleak and Asia’s ability to remain immune is doubtful in the extreme,” said Alex Hill, co-founder of Singapore-based hedge fund Tantallon Capital, which manages more than $300 million.
Chinese data on today failed to offer respite, showing consumer price inflation hugging three-year highs in July.