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Nov 17, 2014 8:04 AM

Japan recession news a drag on global stocks

The Associated Press

LONDON (AP) Japanese shares underperformed global markets Monday after figures showed the country unexpectedly slid into recession in the third quarter of the year.

KEEPING SCORE: Following the dramatic 3 percent fall in Tokyo's benchmark Nikkei index to 16,973.80, European shares started the new week in retreat. The FTSE 100 index of leading British shares was down 0.2 percent at 6,640 while Germany's DAX fell 0.3 percent to 9,224. The CAC-40 in France was 0.4 percent lower at 4,186. Wall Street was poised for a lower opening, with Dow and S&P 500 futures down 0.2 percent.

JAPAN WOES: The main talking point across financial markets was the news that Japan's economy, the world's third-largest, turned in a worse-than-expected performance in the July-September period. Official figures showed the economy contracted at a 1.6 percent annual pace in the July-September quarter, confounding expectations that it would rebound after a big 7.1 percent drop the quarter before. A recession is usually defined as two straight quarters of decline. Many blame a new sales tax in the country for the return to recession.

GLOBAL UNCERTAINTY: With Japan in recession and much of Europe stagnating, there are growing concerns over the state of the global economy, which is increasingly being supported by the U.S. Over the weekend, leaders from the 20 top developed and developing countries the so-called G-20 acknowledged as much and pledged to boost growth. British Prime Minister David Cameron even warned that "red warning lights" are once again flashing over the global economy.

ANALYST TAKE: "Time will tell whether this G-20 meeting is any more successful than previous ones, but if history has taught us anything in recent years, it pays to keep expectations, to coin a phrase, fairly anchored," said Michael Hewson, chief market analyst at CMC Markets.

DRAGHI IN FOCUS: European Central Bank President Mario Draghi is likely to be quizzed later over what the bank can do to shore up the recovery in the wake of figures last week showing the 18-country eurozone grew a muted quarterly rate of 0.2 percent in the third quarter. His comments to the European Parliament will be closely monitored amid some expectations in the markets that the ECB is ready to back a monetary stimulus similar to those enacted by the Federal Reserve and the Bank of England. The ECB's next meeting is in early December.

CHINA LINK: Shanghai shares were propelled higher for most of the day by the launch of a cross-border trading link with Hong Kong, but after the daily limit for Hong Kong investors was exhausted they joined the global trend and sank into the red. The Shanghai-Hong Kong Stock Connect opens the way for greater investor access to each other's exchanges but interest was clearly greater in shares listed on the mainland, where access to outsiders has been tightly restricted. Until now only a small group of designated fund managers have been granted a quota to buy China shares.

ASIA'S DAY: Japan's woes weighed on most markets in Asia. Hong Kong's Hang Seng slid 1.2 percent to 23,797.08 while Australia's S&P/ASX 200 fell 0.8 percent to 5,412.50. However, the Shanghai Composite Index ended only 0.2 percent lower at 2,474.01.

CURRENCIES: Despite the Japan recession news, the yen was little changed, with the dollar flat at 116.22 yen. The euro, meanwhile, was down 0.2 percent at $1.2497.

ENERGY: Concerns over the global economy were dominant in the oil markets, where a barrel of benchmark New York crude was down 81 cents at $75.01.


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