LONDON: World
stocks were set for their seventh straight day of losses yesterday, as
investors nervy about the possibility of a prolonged US government shutdown and
a worsening global economy opted for the safety of bonds and gold. MSCI's world
equity index, which tracks shares in 47 countries, was 0.15 percent lower on
the day and down almost 7 percent in the past seven sessions -- its worst
stretch of daily losses since January 2016. The index is also just off its
lowest level since March 2017.

"There are a
whole number of factors that have triggered this latest risk off climate,
including the Fed's very modest deviation from its (rate hiking) plan and the
government shutdown in the United States," said Investec economist Philip
Shaw. The US Senate has been unable to break an impasse over US President
Donald Trump's demand for more funds for a wall on the border with Mexico, and
a senior official said the shutdown could continue until Jan. 3.

"We may get
some clarity on several factors in early 2019 starting with a clearer line of
sight on the prospect for a resolution in US-China trade dispute, but until
there are some nerves flying around," Investec's Shaw said. So much so
that US President Donald Trump's Treasury secretary called top U.S. bankers on
Sunday amid an ongoing rout on Wall Street and made plans to convene a group of
officials known as the "Plunge Protection Team."

US stocks have
fallen sharply in recent weeks on concerns over slowing economic growth, with
the S&P 500 index on pace for its biggest percentage decline in December
since the Great Depression. The Nasdaq has fallen nearly 22 percent from its
Aug. 29 high. European stocks followed Asian bourses lower, with a pan-European
index lower half a percent on the day and a shade away from a one-year low hit
on Friday.

This added to a
similar move in MSCI's broadest index of Asia-Pacific shares outside Japan,
though losses were limited as many bourses were either shut or set to close
early ahead of Christmas. By 1000 GMT, Britain's FTSE 100 had fallen 0.5
percent, while France's CAC and Spain's IBEX had eased 0.9 and 0.5 percent
respectively. Germany's DAX and Italy's FTSE MIB were shut for Christmas.
"Markets (are) still under pressure from last week's more hawkish Fed
update, exacerbating fears about slowing growth and more expensive refinancing
following years of stimulus," said Mike van Dulken, head of research at
Accendo Markets.

Global slowdown

The political uncertainty
has only added to the air of risk aversion, punishing equities to the benefit
of bonds. Ten-year Treasury yields were near their lowest since August at 2.789
percent, having fallen over 40 basis points in just six weeks. The gap between
two- and 10-year yields has shrunk to only 14 basis points, a flattening of the
curve that has sometimes heralded economic turning points in the past.

"Many of the
financial and economic indicators that turn first around business cycle peaks
are now flashing red in advanced economies," warned Simon MacAdam, global
economist as Capital Economics. "This is consistent with our view that the
recent loss of momentum in the world economy will develop into a more severe
slowdown in 2019."

The flight to
safe havens again boosted the Japanese yen, with the dollar near a three-month
trough at 111.02 yen yesterday. It fared better against the euro, which was
undermined by a run of poor European data. The single currency hovered at
$1.1399, after being as high as $1.1485 last week. Against a basket of
currencies, the dollar index was a shade softer at 96.745. Gold too has
regained its appeal, holding near recent six-month peak around $1,262.6300 per
ounce. Oil prices were near their lowest since the third quarter of 2017, having
shed 11 percent last week. - AFP