Asian markets have dropped in early trading after two explosions hit the Boston Marathon finishing line killing three people and injuring dozens more.
Stock indexes fell by as much as 2% in Japan. South Korea and Australia also dropped, as did oil and gold prices.
Earlier on Monday, US markets closed lower after the blasts accelerated a sell-off started by weak economic data.
Analysts said that investors would be more risk averse in coming sessions and would focus on Asia’s problem areas.
“This is a kind of unknown-unknown event and a stark reminder that the world continues to remain unsafe,” said Vishnu Varathan of Japanese bank Mizhuo.
“While it has happened far away from Asia, it is likely to trigger concerns and fears over Asia’s known-unknowns.
“You have the Korean peninsula tensions, the territorial dispute between China and Japan, and other issues in the China Sea which all pose risks if they flare up,” he added.
Asian markets have dropped in early trading after two explosions hit the Boston Marathon finishing line killing three people and injuring dozens more
Faced with these problems, investors reacted to the news of the blasts by trying to cut risks, not least because in recent weeks stock markets in Asia have seen strong gains.
Japan’s Nikkei 225 index was recently trading 1% lower, while South Korea’s Kospi was down 0.9% and Australia’s ASX 200 shed 0.8%.
In the US, all three of the country’s main stock indexes closed lower on Monday. The Dow Jones ended the day down 1.8%, while the S&P shut 2.3% lower and the Nasdaq shed 2.4%.
Oil prices dropped in Asia, with US light crude down by 1.9%, and Brent crude sliding 1.6%. Gold continued to fall, extending Monday’s 10% fall and continuing to hit its lowest levels in two years.
By contrast, the Japanese yen gained against the US dollar because many investors see it as a less risky asset.
“The developments in Boston are likely to trigger an initial reaction of caution,” said Michael McCarthy, chief market analyst at CMC Markets.
The Japanese currency rose as much as 2.5% to 96.61 yen against the US dollar in New York on Monday. It also gained nearly 3% against the euro, rising as high as 125.98 yen against the single European currency.
Analysts said that many large Japanese banks or pension funds tended to sell riskier assets during times of uncertainty, bringing the money back into the country, resulting in an appreciation in the yen’s value.
Knowing this, other global investors also buy the yen, or yen-denominated assets, to benefit from this gain. However, once the risks recede, then investors tended to sell their yen and use the proceeds to again invest in riskier assets.
Analysts said the blasts had further dented investor morale in both Asia and elsewhere, which had already been shaken by weaker-than-expected Chinese and US data.
They also pointed to a number of potential Asian flashpoints that caused investors to be cautious, such as the heightened tensions on the Korean peninsula.
North Korea has recently conducted a nuclear test, and in recent weeks it has also threatened to attack South Korea, Japan and US bases in the region.
Meanwhile, the spat between China and Japan over a set of disputed islands in the East China Sea has flared up. The issue is yet to be resolved and continues to remain a bone of contention between Asia’s two biggest economies.
Analysts have often have warned that an escalation of any of these issues was likely to hurt the region’s economic growth.
“Asia is increasingly relying on intra-regional trade to sustain its economic growth,” said Vishnu Varathan of Mizhuo.
“Any full-blown conflict between Asian nations will hurt trade and could adversely impact economic growth.”
Signs of economic weakness around the globe and Europe’s intensifying debt crisis are unnerving investors, who have been piling out of riskier investments like commodities and equities for the perceived safety of higher-rated government bonds.
U.S. banking stocks are heading into a bear market as Europe’s debt crisis pressures the sector. The KBW Bank index , which measures the performance of 24 U.S. banks, is down 16 percent from a peak in March. The index was down 1.2 percent just after the open on Monday.
Morgan Stanley has come under pressure as bond markets treat the bank as a junk-rated company, and the higher borrowing costs could already be putting it at a disadvantage even before an expected ratings downgrade. The bank’s stock is off 40 percent since late March.
“We may well have a snap back rally on the equity side but I don’t think it will be a big one, there is still a lot of caution out there,” said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.
“All we’ve really done is seen some short covering here in the stock indexes and we are just stable, bonds are still very elevated.”
With little on the economic or corporate calendar Monday, investors are taking most of their cues from any comments out of Europe.
“Europe is front and center, back, left and right,” said Dan Greenhaus, chief global strategist at BTIG.
Germany’s DAX lost 0.9% to 5,993 and Switzerland’s SMI shed 0.6% to 5,741, though France’s CAC-40 managed to rise 0.5% to 2,968.49. Markets in Britain were closed for a holiday.
Peter Cardillo, chief market economist at Rockwell Global Capital in New York said he was watching 1,275 as a support level on the S&P 500 after the index broke through its 200-day moving average on Friday following the worst decline for the index in 7 months.
“If we close under that tonight, then the market is headed lower in the short-term, possibly by 3 or 4 percent,” he said.
In a potential boost for markets looking for measures to end the debt crisis, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro-area finances, and major new powers for the European Commission, European Parliament and European Court of Justice.
Three leading Portuguese banks said on Monday they would draw on funds provided under the country’s 78 billion-euro ($96-billion) international bailout to meet tough new capital requirements as they struggle with the country’s debt crisis.
Stock trends
Investors sold shares in Asia as well, including stock in Sony, which fell below 1,000 yen for the first time since 1980 — the year after it introduced the iconic Walkman portable cassette player.
Japan’s Nikkei 224 index dropped 1.7% to close at 8,295.63, its lowest finish since Nov. 28, 2011. The broader Topix index ended below the 700 mark for the first time since December 1983, Kyodo News Agency said.
Japan’s shares fell sharply on Monday, with the broader Topix index hitting a 28-year low as investors reacted to the disappointing Friday U.S. jobs data.
“While we are not down 20 percent and in official bear market territory, we believe that we have entered a bear market,” wrote Wayne Kaufman, chief market analyst at John Thomas Financial in a note on Monday.
“Equities have not responded to oversold conditions or to very attractive valuations versus bonds, and we must take that as a warning,” he said.
There are also worries about slowing growth in emerging markets such as China and India. Recent reports out of China last week showed the manufacturing sector contracted more than expected in May.
The S&P 500 (SPX) lost 3 points, or 0.1%. The Nasdaq (COMP) moved down 3 points, or 0.1%. The Dow Jones industrial average (INDU) dropped 24 points, or 0.2%.
Facebook IPO aftermath
Companies: Shares of Facebook (FB), which have gotten hammered since the company’s IPO, edged slightly lower.
Groupon (GRPN) shares added 0.6% after dropping sharply Friday. The online discount service, which has been dogged with questions about its accounting practices since its initial public offering in November, ended its lock-up period Friday, meaning that insiders who own shares are now able to sell them.
Currencies and commodities
The dollar rose against the euro and Japanese yen, but fell versus the British pound.
Oil for July delivery lost 23 cents to $83.47 a barrel.
Gold futures for August delivery lost $2.60 to $1,614.60 an ounce.
