Stock markets slid yesterday, with Asia taking the heaviest hit, as investors took flight on mounting fears of a sharp global economic slowdown.
Investors shrugged off news that an investigation found no evidence of collusion between US President Donald Trump’s election campaign and Russia.
Dealers have been spooked by growing evidence of a slowdown, after a broad-based rally since the start of the year that was built on hopes for China-US trade talks and a more dovish Federal Reserve.
“Concerns over the health of the global economy heat up at a rapid pace,” said analyst Jameel Ahmad at traders FXTM.
In Europe, key stock markets were lower, with London the weakest performer, while Wall Street also got off to a softer start.
Eurozone losses were capped by the closely-watched Ifo index that showed recovering confidence among Germany’s business leaders in March after six months of decline.
Tokyo’s main stocks index was hammered 3.0 per cent, while Hong Kong and Shanghai both dived two per cent, as concerns festered also over a possible recession in the United States, dealers said.
“Despite a miserable session for Asia, European markets are managing to avoid heavy losses,” noted IG analyst Chris Beauchamp.
“The risk-off mood at the end of last week seemed dramatic, and was perhaps justified given the sudden shift in the economic outlook, but a better reading from the German Ifo index has provided some reason for optimism,” he added.
US and European equities had tumbled Friday as the yield on 10-year Treasury bonds fell below those for three-month notes ‒ the first time this had happened since before the global financial crisis.
This so-called inverted yield curve shows investors are more willing to buy long-term debt ‒ usually considered higher risk ‒ as they consider the short-term outlook more risky.
“This development will psychologically encourage further anxiety and rocket fears that the global economy is heading for another downturn, if recent economic releases across the globe have not already provided indications that the downturn has arrived,” added analyst Ahmad.
The yield curve is closely watched since it has inverted prior to recessions in recent decades.
The rush to the 10-year US bond market followed weak manufacturing data out of the US, eurozone giant Germany and France on Friday.
That came days after the Fed's announcement that it was unlikely to lift interest rates this year owing to unease about the US and global economy.