Stocks, oil and gold fell today as investors took positions ahead of corporate earnings in the United States that are expected to reflect the impact of slowing global growth.
Several big companies, including FedEx and Hewlett-Packard, have issued profit warnings before the earnings season which starts tomorrow. This has unnerved investors and raised concerns as to the extent of the economic gloom.
Parts of Europe are in recession, there is a slowdown in China and the US economy is only in a weak recovery, prompting the world's major central banks to ease policies last month.
"I think (analysts) underestimated the extent of the global slowdown, and maybe are still underestimating it," said Jeff Kleintop, chief market strategist at LPL Financial.
The Standard & Poor's 500 index gained 5.8 per cent over the third quarter due to the aggressive stimulus plans by the central banks, but earnings for the period are forecast to fall 2.4 per cent from the year-ago quarter.
European shares were down around 1 per cent in morning trade on the concerns over the earnings outlook, while Asian shares outside Japan fell 0.9 per cent although Tokyo markets were closed for a holiday.
US stock index futures were also pointing to a lower open on Wall Street, with the S&P 500 futures down 0.4 per cent. Columbus Day celebrations in United States today were likely to limit trading, although stock markets are open.
The weaker tone in the markets also reflected the World Bank's decision to cuts its estimate for East Asian growth including for China, which undid some of the positive sentiment that followed Friday's sharp drop in US unemployment for September.
"The big bogeyman in the closet is China and everyone is trying to guesstimate if it's going to have a hard landing or a soft landing," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
The greenback and the safe-haven yen rose after the World Bank report, but the higher-yielding Australian dollar , which is particularly sensitive to concerns about China given the countries' close trading links, dropped to a three-month low of $1.0149.
Brent crude for November delivery fell 54 cents at $111.48 a barrel, and the gold price edged down 0.1 per cent to $1,769 an ounce.
"The World Bank's pessimistic outlook for East Asian economies and warning that China's economic slump could deteriorate further ... had a hand in pushing prices lower," said David Wech, head of market analysis at Vienna-based consultancy JBC Energy.
In Europe fresh data showed investor sentiment had improved for a second consecutive month in October thanks largely to the monetary easing by the central banks and Germany's backing for a new permanent bailout fund for the European currency region.
German export data for August also surprised by jumping 2.4 per cent month-on-month, far outperforming expectations for a drop of 0.5 per cent in a Reuters poll of 17 economists.
However, the ongoing uncertainty over the next steps in the region's debt crisis, coupled with the weak economic outlook weighed on the euro which was 0.5 per cent lower at $1.2966 , and down from Friday's two-week high of $1.3072.
European investors were focused on a meeting of euro zone finance ministers who will formally launch the new bailout fund, the European Stability Mechanism. They are also expected to discuss the problems facing Spain and Greece.
The market was also bracing for German Chancellor Angela Merkel's visit to Athens tomorrow. Finance minister Wolfgang Schäuble yesterday said that Dr Merkel's trip to Greece did not necessarily mean Athens would receive the next tranche of aid under its bailout.
Reuters
