Global stocks tumbled to one-week lows yesterday, as declines by long-dated US bond yields and a renewal of trade concerns stoked fears of a downturn in the United States, the world’s largest economy.
US markets were closed to mark former President George H.W. Bush’s death, but the effect of Wall Street’s turmoil in the previous session, when New York-listed shares tumbled more than 3 per cent, was felt in Asia and Europe.
That pushed MSCI’s all-country index down 0.4 per cent.
Tuesday’s declines came just a day after an equity surge driven by optimism that China and the United States would sort out their trade dispute. Then President Donald Trump threatened “major tariffs” on Chinese imports if his administration failed to reach an effective trade deal with Beijing.
Mr Trump’s comments, alongside the drop in US stocks and bond yields, pushed Asian shares outside Japan 1.5 per cent lower. Shanghai markets fell 0.6 per cent, their losses limited by Chinese officials expressing confidence that a trade deal would be clinched on time.
But European losses were trimmed as the session continued, with a pan-European index down 0.75 per cent by the afternoon trading compared with falls of over one percent earlier. Global equities have been shaken by fears of a recession, fanned by the flattening US Treasury yield curve – a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts.
Such an inversion of two-year and 10-year yields, when 10-year bonds yield less than their two-year debt, has preceded every US recession in the past 50 years.
German 10-year yields yesterday slipped to six-month lows of 0.247 per cent before rising back to 0.259 per cent.
Italian bonds extended their rally, with two-year yields falling 10 bps to 4 ½-month lows after a Cabinet official raised hopes that the government could cut nearly four billion euros from its 2019 budget plans.
The dollar has been undermined by the bond market moves and recession fears, but it has recovered from two-week lows against a basket of currencies to trade around 97, 0.10 percent lower on the day.
It rose 0.1 per cent to 112.9 yen after losing 0.75 per cent the previous day against the safe-haven Japanese currency.
The threat of slowing economic activity also weighed on oil prices, but Brent futures trimmed losses to stand 0.4 per cent lower at $61.8 per barrel. It had earlier fallen more than 1 per cent.