SYDNEY - Asian share markets slipped while the euro hit a nine-year trough on Wednesday as collapsing oil prices and worries about the world economy drove skittish investors into the arms of safe havens such as the yen and sovereign debt.
From Japan to Germany to Australia, government borrowing costs reached all-time lows as oil fell 10 per cent in just two days and investors wrestled with the risk of global deflation.
Data from the euro zone due later on Wednesday are expected to show the first annual fall in consumer prices since 2009, piling pressure on the European Central Bank to launch all-out quantitative easing at its next policy meeting on Jan 22.
"We expect the ECB to announce a sovereign QE programme on 22 January, and the first purchases to probably start in the following week," said Citi economist Guillaume Menuet. "Given the sizeable decline in market-based inflation estimates and the likelihood of a negative print for the December flash estimate, we doubt that the ECB will choose to wait," he added. "Investors would probably react very negatively to a "no QE" announcement."
Investors were busy selling the euro in anticipation of more money-printing by the central bank, pushing the single currency to a fresh low of US$1.1842 in Asian trade.
The euro also dropped to 140.58 yen, a low last seen in early November, while the US dollar eased to 118.58 yen and further away from December's peak of 121.86.
Not helping was a report Germany was making contingency plans for the possible departure of Greece from the euro zone. Tabloid newspaper Bild cited unnamed government sources saying Berlin was running scenarios for the Jan. 25 Greek election in case of a victory by the leftwing Syriza party.
The general mood of risk aversion took a toll on equities, with Japan's Nikkei falling 0.3 per cent on opening Wednesday after suffering the largest one-day drop in 10 months on Tuesday.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 per cent while Australian stocks fell a further 0.7 per cent.
On Wall Street, the three major stock indexes fell for a fifth straight session. For the S&P 500 it was the longest losing streak since late 2013.
The Dow shed 0.75 per cent, the S&P 500 0.9 per cent and the Nasdaq 1.29 per cent.
Overshadowing sentiment were worries about what the breakneck decline in oil would mean for earnings of oil companies and disinflationary pressures worldwide.
Brent cost just US$50.90 a barrel having shed almost 10 per cent so far this week, while U.S. crude was stuck at US$48.07, after plumbing an April 2009 low of US$47.55.
With fears of deflation rampant, yields on longer-dated Japanese, German, French, Dutch, Austrian, Belgian, Finnish, Canadian and Australian bonds all touched record lows.
Investors also pushed back the day when the Federal Reserve might be able to hike U.S. interest rates. Fed fund futures imply no chance of a hike by June and only one rise to 0.5 per cent by year end.
Even if the Fed sticks to its current timetable and moves around mid-year, markets are wagering it will be so far ahead of the curve that inflation will remain permanently low.
As a result, investors are willing to accept less compensation for inflation risk over time, so pulling down yields on even the longest dated bonds.
Yields on U.S. 30-year paper dived to 2.471 per cent to be just a whisker above their all-time trough of 2.443 per cent. The 10-year note yielded 1.94 per cent having fallen 23 basis points in just three sessions.