Market Preview: Asian market collapse points to brutal day ahead

Yesterday’s bloodbath looks set to continue today, when markets open in Mumbai.

All across Asia this morning, trading boards are awash in red, continuing the downward spiral that’s been around the world two days running.

Overnight, Wall Street lost the gains from its recent three-day rally; all three indices fell sharply, with signs of increasing panic showing up. Economic data out of the US, particularly unemployment data, too came in weak. Wall Street Index futures for Friday are down even further, pointing to the underlying weakness.

What’s driving markets down is the fear that the US and Europe are headed for a recession and will drag down the rest of the world with them. Overnight, Morgan Stanley revised its GDP forecast for the US and the euro area and said they were “hovering dangerously close to a recession… over the next six to 12 months.”

Strategists at Barclays Capital reckon that “fears that the sovereign debt crisis in Europe will continue to escalate - with fiscal sustainability now being questioned in Spain, Italy and even France - have contributed significantly to the surge in volatility worldwide.”

Increasingly, there’s fear that one or more banks in the Eurozone area could be on infirm ground, and perhaps needs a bailout. That’s had markets going over the “Lehman moment” from 2008, although some analysts reckon that that’s an exaggerated fear.

Back home in India, too, bearish analysts outnumber those with a somewhat more positive outlook on the market.

Gold is trading at a new high, but curiously, and Treasury yields dived to a new low. Both are flashing a heightened risk aversion and a flight to safety.

All of which just means that we’re in for another brutal day in the markets.

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