European shares were set for sharp losses on Monday after Asian stocks slid and the euro hit a three-week low against the dollar, as fears of a renewed U.S. recession and sustained worries about the euro zone debt crisis prompted investors to sell riskier assets.
U.S. employment data on Friday showed the world’s biggest economy failed to create any jobs last month for the first time in nearly a year.
“Even if you take out the effect from the Verizon strike, it is still a lousy number and people are concerned that growth is not there any more,” said Dominic Schnider, head of commodity research of UBS Wealth Management in Singapore.
Europe, meanwhile, faces a string of political and legal tests this week that could hurt efforts to resolve its sovereign debt crisis and increase pressure on governments to try more radical solutions.
“In this atmosphere, foreign investors are likely to remain risk-averse and inactive,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co in Tokyo.
Euro STOXX 50 futures fell 1.9 percent, while index futures for Germany’s DAX and France’s CAC-40 were down the same amount. Financial bookmakers called the FTSE 100 to open down 1.3 percent.
Demand for safer assets drove up Japanese government bonds, while the yen firmed a touch and gold lost only a little ground after spiking on Friday.
Tokyo’s Nikkei share average fell 1.9 percent, while MSCI’s broadest index of Asia Pacific shares outside Japan fell 3 percent, leaving it nearly 18 percent below its April high.
Energy and materials, both sensitive to expectations of industrial demand, and technology, affected by Western demand for Asian electronics, were the hardest hit sectors in the MSCI index, shedding between 3.5 and 4.5 percent.
Stocks on Wall Street and other major exchanges closed down more than 2 percent on Friday after the U.S. Labor Department report, which also sparked a rally in safe haven investments such as gold, Treasuries and the Swiss franc.
U.S. S&P stock futures fell 0.7 percent in Asia, extending Friday’s weakness, although Wall Street is closed on Monday for the Labor Day holiday.
Investors are looking ahead to a speech to Congress by President Barack Obama on Thursday for details on how he plans to boost the economy.
“Some don’t expect much in the way of concrete measures from Obama. There won’t be any magic rebound,” said Fumiyuki Nakanishi, strategist at SMBC Friend Securities in Tokyo.
The worsening outlook also piles pressure on the U.S. Federal Reserve to embark on a third round of money creation via bond purchases, known as quantitative easing, which could cheapen the dollar and encourage buying of riskier assets.
A year ago a signal from Fed Chairman Ben Bernanke that a second bout of quantitative easing, dubbed QE2, was in the pipeline triggered a rally that saw the S&P 500 rise about 30 percent from August to May.
This time, however, some analysts are doubtful that any “QE3” program would have a similar effect and the central bank itself appears more reluctant.
“This is likely to bring further calls for quantitative easing, despite the Fed’s apparent aversion,” said CMC Markets market strategist Michael McCarthy in a research note.
In currency markets, the euro hit its lowest level in three weeks against the dollar while currencies affected by expected demand for commodities, such as the Australian dollar, also came under pressure.
A court ruling in Germany on Wednesday may limit the ability of the euro zone’s biggest economy to finance rescues of crisis-hit countries such as Greece.
There is also speculation over whether the European Central Bank will continue purchasing Italian debt, a policy that has caused sharp divisions within the central bank’s governing council, ahead of its next policy meeting on Thursday.
“Countries that need help are getting tired of reforms. Countries that are paying money are getting tired of helping,” said Kimihiko Tomita, manager of forex at State Street.
“The outlook of the euro zone bailout scheme is becoming a bit shaky.”
The euro fell to around $1.4150, having dropped as far as $1.41367, its lowest since August 11. That helped drive the dollar index back to one-month highs.
The yen firmed slightly to around 76.70 per dollar.
Japanese government bond September 10-year futures rose 0.50 point to 142.79, while the benchmark 10-year yield fell 4.5 basis points to 1.015 percent.
Gold held most of its gains, inching down around 0.3 percent to about $1,879 an ounce after jumping more than 3 percent on Friday.
Oil eased on concerns that a “double-dip” U.S. recession would slow demand, with Brent crude falling 0.8 percent to $111.45 a barrel while U.S. crude eased around 1.1 percent to $85.52 a barrel.