Global stock markets tumble amid fears of recession in US
Print Edition
GLOBAL stock markets fell sharply again yesterday, a day after Wall Street endured its worst day of the year as recession fears in the US and around the world escalated.
Investors across financial assets have been gripped by developments in the US bond market. On Wednesday, they focused on the fact the yield, or interest rate, on the benchmark 10-year Treasury bond briefly dropped below the two-year Treasury’s yield for the first time since 2007.
That’s a sign that traders have sought the sanctuary of US government bonds amid concerns of an economic slowdown.
Traders clearly took fright at that development, with the Dow Jones industrial average dropping 800 points, or 3.1 percent, on Wednesday — its worst performance in 2019.
“The countdown to a recession has just started,” said Hussein Sayed, Chief Market Strategist at FXTM.
In Europe, Germany’s DAX was down a further 1.2 percent at 11,359 yesterday while the FTSE 100 index of leading British shares was 1.4 percent lower at 7,051. The CAC 40 in France was 0.9 percent at 5,203. Japan’s Nikkei 225 fell 1.2 percent, and the Hang Seng in Hong Kong rose 0.8 percent.
But Chinese equities rose again yesterday.
The benchmark Shanghai Composite Index added 0.25 percent to 2,815.80 points, the smaller Shenzhen Component Index advanced 0.48 percent to 9,009.68 points and the blue chip CSI300 index was higher by 0.32 percent at 3,694.00 points.
Connected to the recession fears — data out of Europe have also been disappointing — are worries over the escalation of the trade conflict between the US and China. Uncertainty about the US-Chinese tariff war has been behind much of this month’s selling in stock markets. So far in August, the Dow has dropped more than 5 percent and the S&P 500 is down more than 4 percent.
Add in worries over Brexit, Italian politics and political unrest in Hong Kong and the backdrop for stock markets is about as difficult as at any time since the global financial crisis a decade or so ago.
Those concerns helped drive the yield on the 10-year Treasury to 1.56 percent yesterday, down from 1.58 percent on Wednesday and from more than 3 percent last year. The 10-year yield has sunk so much that it dropped below the yield of the two-year Treasury, a rare occurrence and one that has historically suggested a recession may be a year or two away.
The 30-year Treasury yield fell to 2.01 percent from 2.02 percent and earlier dropped below 2 percent to a record low, a sign of concern among investors. When worried about weaker economic growth and inflation, they tend to pile into Treasurys, which pushes up their prices and in turn pushes down yields.
“The fact is that no one actually knows what is next for the markets,” said Fiona Cincotta, senior market analyst at City Index. “However, the signs flashing from the markets are not great.”
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