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A currency trader works in front of a screen showing the Korea Composite Stock Price Index (KOSPI) at the Korea Exchange Bank headquarters in Seoul, South Korea, Monday, Feb. 3, 2014. (Ahn Young-joon/AP Photo)
A currency trader works in front of a screen showing the Korea Composite Stock Price Index (KOSPI) at the Korea Exchange Bank headquarters in Seoul, South Korea, Monday, Feb. 3, 2014. (Ahn Young-joon/AP Photo)

Premarket: Emerging markets selloff grinds on, euro dogged by ECB talk Add to ...

Growing pressure for more policy easing in the euro zone pinned the euro near a 10-week low on Monday while persistent tension in emerging markets drove Hungary’s forint to a 10-month trough and weighed on global stocks.

Stock markets in Europe <.FTEU3> reflected the weak appetite for riskier assets as they slid 0.6 per cent, following shares in Asia.

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MSCI’s global index <.MIWD00000PUS> posted its largest monthly decline in January since May 2012. Emerging markets <.MSCIEF> lost 6.6 per cent for their worst January since 2009.

“It is a global macro question and global risk sentiment is really at stake here,” said John Hardy, head of FX strategy at Saxo bank in Copenhagen. “There are a lot of event risks this week and it just feels like markets are trying to figure out where they are.”

The week ahead provides a raft of global business surveys and jobs data from the United States to offer a clearer view on the global economy, while the European Central Bank (ECB) might well consider easing policy at its meeting on Thursday.

The prospect of an ECB move weighed on the euro on Monday, pinning it near 10-week lows at $1.3490 following a break of major support at $1.3506.

A fall in euro zone inflation to 0.7 per cent last month – far below the ECB’s target of just under 2 per cent – has raised the specter of deflation in the bloc, and with tumbling emerging market currencies threatening to compound the problem, calls are increasing on the bank to take action.

The pressure on the shared currency was eased slightly by data showing euro zone factories enjoyed their strongest month since mid-2011 in January and the first growth in Greek manufacturing activity since August 2009.

But reports that the euro zone is preparing for more debt relief for Greece reheated tensions in the currency bloc’s debt market.

“It feels like the euro it is breaking here,” Hardy added. “If the ECB doesn’t reverse that break I am looking towards $1.32 for an intermediate area and then $1.30.”

BAHT BOUNCES, FORINT VULNERABLE

Emerging markets will also be high on the 24-member ECB Governing Council’s agenda. If the stampede out of developing markets forces the euro higher again, that could drive euro zone inflation unacceptably low.

The Thai baht bounced on Monday after peaceful elections over the weekend triggered short-covering, but the South Korean won had its worst day in 7-1/2 months, leading losses among Asian currencies on stress in emerging markets. <EMRG/FRX> In China, the official Purchasing Managers’ Index (PMI) dipped to 50.5 in January from December’s 51, in line with market expectations. A separate survey of the service sector also showed a moderation in growth.

Back in emerging Europe, there were signs Hungary was being dragged deeper into the troubles as its forint currency nudged to a 10-month low, though a jump in January PMI data curbed the pressure.

Many see Hungary, with its high debt levels and unorthodox economic policies, as the most vulnerable in emerging Europe to the reversal in sentiment.

Turkey’s lira, another flashpoint in the latest upheaval, found relative calm after a drastic official interest rate rise last week.

In Asia, Japan’s Nikkei <.N225> again led share market losses as a fresh 2 per cent drop took it to lows not seen since mid-November.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> eased 0.3 per cent, while Seoul’s KOSPI lost 1 per cent <.KS11>. U.S. stock futures, however, pointed to a modest 0.1 per cent dip.

FLIGHT TO SAFETY

Among assets traditionally perceived as relatively safe, the yen rose to 101.87 yen in European trading to leave it hovering at a near two-month high, while the yields on benchmark 10-year U.S. Treasury note dropped to 2.66 per cent to near levels not seen since mid-November.

But gold failed has actually lost ground over the past week to stand at $1,244.19 an ounce on Monday.

Brent oil was off 2 cents at $106.38 a barrel, having suffered its biggest monthly loss in four months. U.S. crude eased 21 cents to $97.28.

“Brent is suffering from the emerging market turmoil that is spreading across most markets,” said Tetsu Emori, a commodity fund manager at Astmax Investment.

 
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