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Dow tumbles 800 points as US and UK yield curves invert, and German recession looms – business live Dow tumbles 800 points as US and UK yield curves invert, and German recession looms – business live
(32 minutes later)
The S&P 500 index, which covers a wider range of companies than the Dow, also shed 2.9% today.
Retail chain Macy’s was the worst performer, slumping by over 13% after posting dire earnings figures today.
Tech stock also struggled today, with Amazon losing 3.3% and Apple down 3%.
Our economics editor Larry Elliott argues that the slump in bond yields is vindication for Trump in his battle with the Federal Reserve.
He writes:
The Fed is highly sensitive to what is happening on Wall Street and a rate cut at its next meeting in September is a nailed-on certainty. Some analysts, Steen Jakobsen at Saxo Bank, for instance, think that the US central bank may not wait that long and instead announce an emergency cut before its scheduled meeting.
That still seems a bit of a long shot but the accumulation of bad economic news means that the battle between the Fed and the White House has been won decisively by Trump. All that remains is to see how much face the Fed’s chairman, Jerome Powell, can save.
More here:
Inverted curve proves White House has won its battle with the Fed
Donald Trump is leaving no doubt about who he blames for the sell off:Donald Trump is leaving no doubt about who he blames for the sell off:
We are winning, big time, against China. Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down. China is not our problem, though Hong Kong is not helping. Our problem is with the Fed. Raised too much & too fast. Now too slow to cut....We are winning, big time, against China. Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down. China is not our problem, though Hong Kong is not helping. Our problem is with the Fed. Raised too much & too fast. Now too slow to cut....
..Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!..Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!
However, America hasn’t yet won major concessions from China, and the trade war is clearly a factor in the slowdown.However, America hasn’t yet won major concessions from China, and the trade war is clearly a factor in the slowdown.
Today’s sell off is one of the biggest points falls on the Dow ever:Today’s sell off is one of the biggest points falls on the Dow ever:
Dow closes down 800 points, 4th largest point decline in history. $DJIA pic.twitter.com/939nhyE834Dow closes down 800 points, 4th largest point decline in history. $DJIA pic.twitter.com/939nhyE834
However, it’s less dramatic in percentage terms:However, it’s less dramatic in percentage terms:
In percentage terms, today's decline in the Dow (-3.05%) was the 342nd largest in history. To break the top 20 you need a drop of over 7%. $DJIA pic.twitter.com/gmfg5h2qi4In percentage terms, today's decline in the Dow (-3.05%) was the 342nd largest in history. To break the top 20 you need a drop of over 7%. $DJIA pic.twitter.com/gmfg5h2qi4
Ouch! The Dow has just closed, deeper in the red than ever.Ouch! The Dow has just closed, deeper in the red than ever.
The benchmark index shed 3%, or exactly 800 points, to end the day at 25,479.The benchmark index shed 3%, or exactly 800 points, to end the day at 25,479.
That shows investors remain very concerned that the global economy is weakening, with recession risks rising in Germany, the US and the UK, with China also a big concern.That shows investors remain very concerned that the global economy is weakening, with recession risks rising in Germany, the US and the UK, with China also a big concern.
Here’s our news story on today’s market gyrations:Here’s our news story on today’s market gyrations:
Markets spiral downwards on fears of German recessionMarkets spiral downwards on fears of German recession
Update: Wall Street is refusing to shake off its gloom, and is actually hitting new lows.Update: Wall Street is refusing to shake off its gloom, and is actually hitting new lows.
With barely an hour’s trading to go, the Dow is down an alarming 763 points, or 2.9%, at 25,515 points.With barely an hour’s trading to go, the Dow is down an alarming 763 points, or 2.9%, at 25,515 points.
Are you sitting comfortably? Then here’s a short story about the problemAre you sitting comfortably? Then here’s a short story about the problem
Recessions and the yield curve; all you'll ever need to know. I post this parable every year or so, so it would be remiss not to roll it out today of all days. pic.twitter.com/2PCDrblltdRecessions and the yield curve; all you'll ever need to know. I post this parable every year or so, so it would be remiss not to roll it out today of all days. pic.twitter.com/2PCDrblltd
Time for a recapTime for a recap
Stocks have plunged on both sides of the Atlantic as fears grow that America could fall into recession, dragged down by a global slowdown and the trade war with China.Stocks have plunged on both sides of the Atlantic as fears grow that America could fall into recession, dragged down by a global slowdown and the trade war with China.
On Wall Street, the main share indices have lost at least 2.5% as a big wave of selling rips through the markets. The Dow Jones industrial average lost more than 700 points at one stage, with banks, tech stocks and industrial companies suffering sharp falls.On Wall Street, the main share indices have lost at least 2.5% as a big wave of selling rips through the markets. The Dow Jones industrial average lost more than 700 points at one stage, with banks, tech stocks and industrial companies suffering sharp falls.
In London, the FTSE 100 tumbled by more than 103 points, hitting its lowest closing level since March.In London, the FTSE 100 tumbled by more than 103 points, hitting its lowest closing level since March.
The selloff was sparked by alarm that both the US and UK government bond yields inverted today, as bond prices soared. That means that traders are accepting a lower interest rate to hold longer-dated bonds than the shorter-dated alternative.The selloff was sparked by alarm that both the US and UK government bond yields inverted today, as bond prices soared. That means that traders are accepting a lower interest rate to hold longer-dated bonds than the shorter-dated alternative.
An inverted yield curve is an unusual situation that typically only happens before a recession, at least in America. It’s a classic warning light, which has flashed ominously brightly today.An inverted yield curve is an unusual situation that typically only happens before a recession, at least in America. It’s a classic warning light, which has flashed ominously brightly today.
However, some experts - including former top central banker Janet Yellen - believe that a recession can be avoided. They believe the bond market is predicting low growth in the future, but hopefully not a full-blown downturn.However, some experts - including former top central banker Janet Yellen - believe that a recession can be avoided. They believe the bond market is predicting low growth in the future, but hopefully not a full-blown downturn.
The White House has responded by renewing its call for US interest rate cuts soon. President Trump claimed the Fed had made two huge mistakes, while trade advisor Peter Navarro predicted borrowing costs would be slashed in the coming months.The White House has responded by renewing its call for US interest rate cuts soon. President Trump claimed the Fed had made two huge mistakes, while trade advisor Peter Navarro predicted borrowing costs would be slashed in the coming months.
Traders were also alarmed by new data showing that Germany’s economy shrank by 0.1% in the second quarter of 2019. Germany joined the UK and Sweden as the worst-performing EU members, as eurozone growth halved to 0.2%.Traders were also alarmed by new data showing that Germany’s economy shrank by 0.1% in the second quarter of 2019. Germany joined the UK and Sweden as the worst-performing EU members, as eurozone growth halved to 0.2%.
Germany’s economy suffered from a slump in exports, due to trade war tensions. Economists believe that Berlin should boost government spending quickly, to prop up growth. Otherwise, Europe’s largest economy could soon fall into recession.Germany’s economy suffered from a slump in exports, due to trade war tensions. Economists believe that Berlin should boost government spending quickly, to prop up growth. Otherwise, Europe’s largest economy could soon fall into recession.
Newsflash: President Donald Trump has launched another salvo at Federal Reserve chair Jerome Powell.Newsflash: President Donald Trump has launched another salvo at Federal Reserve chair Jerome Powell.
Trump is unhappy with the way Powell presented last month’s interest rate cut, and (as usual) is pushing the Fed for more aggressive cuts.Trump is unhappy with the way Powell presented last month’s interest rate cut, and (as usual) is pushing the Fed for more aggressive cuts.
The Great Charles Payne @cvpayne correctly stated that Fed Chair Jay Powell made TWO enormous mistakes. 1. When he said “mid cycle adjustment.” 2. We’re data dependent. “He did not do the right thing.” I agree (to put it mildly!). @VarneycoThe Great Charles Payne @cvpayne correctly stated that Fed Chair Jay Powell made TWO enormous mistakes. 1. When he said “mid cycle adjustment.” 2. We’re data dependent. “He did not do the right thing.” I agree (to put it mildly!). @Varneyco
Given the torrent of criticism from Trump, Powell may feel his first mistake was accepting the offer to run the Fed at all!Given the torrent of criticism from Trump, Powell may feel his first mistake was accepting the offer to run the Fed at all!
The president has also appeared to welcome the plunge in US bond yields today, caused by a dash to buy Treasury bills.The president has also appeared to welcome the plunge in US bond yields today, caused by a dash to buy Treasury bills.
Tremendous amounts of money pouring into the United States. People want safety!Tremendous amounts of money pouring into the United States. People want safety!
Attention traders!Attention traders!
Former Federal Reserve Chairman Janet Yellen believes the markets may be wrong in assuming that the inverted US yield curve is signalling a recession.Former Federal Reserve Chairman Janet Yellen believes the markets may be wrong in assuming that the inverted US yield curve is signalling a recession.
Speaking on Fox Business, Yellen said that this time things are different....Speaking on Fox Business, Yellen said that this time things are different....
Historically, it has been a pretty good signal of recession, and it think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal.Historically, it has been a pretty good signal of recession, and it think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal.
The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.”The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.”
Yellen also believes that America will avoid a recession, but revealed she is becoming more concerned:Yellen also believes that America will avoid a recession, but revealed she is becoming more concerned:
I think the U.S. economy has enough strength to avoid that, but the odds have clearly risen and their higher than I’m frankly comfortable with.”I think the U.S. economy has enough strength to avoid that, but the odds have clearly risen and their higher than I’m frankly comfortable with.”
Ouch! The Dow Jones industrial average has now lost more than 700 points, as Wall Street traders continue hammering their sell buttons.Ouch! The Dow Jones industrial average has now lost more than 700 points, as Wall Street traders continue hammering their sell buttons.
The benchmark index is now down 2.7% at 25,561.The benchmark index is now down 2.7% at 25,561.
Each of the 30 companies on the Dow is in the red, with the mining sector shedding 4.4%, banks down 3.6% and energy firms down 3.2%.Each of the 30 companies on the Dow is in the red, with the mining sector shedding 4.4%, banks down 3.6% and energy firms down 3.2%.
The broader S&P 500 index has also lost 2.7%, while the Nasdaw is down 3% as tech stocks are pummelled.The broader S&P 500 index has also lost 2.7%, while the Nasdaw is down 3% as tech stocks are pummelled.
Recession fears are flooding over the trading floors, even though several economists have cautioned against panicking over the inverted US yield curve.Recession fears are flooding over the trading floors, even though several economists have cautioned against panicking over the inverted US yield curve.
As David Madden of CMC Markets puts it:As David Madden of CMC Markets puts it:
The inversion of the US 2 year yield and the US 10 year yield has sent shockwaves through the markets, and that has forewarned recessions in the US, and traders are running scared.The inversion of the US 2 year yield and the US 10 year yield has sent shockwaves through the markets, and that has forewarned recessions in the US, and traders are running scared.
The major indices sold-off sharply for fear the US is heading for a recession. The underlying fundamentals are solid as the jobless rate is at multi-decade lows, and average earnings are outstripping inflation, but for now dealers are focusing on the yield curve, and equities are taking a hammering.The major indices sold-off sharply for fear the US is heading for a recession. The underlying fundamentals are solid as the jobless rate is at multi-decade lows, and average earnings are outstripping inflation, but for now dealers are focusing on the yield curve, and equities are taking a hammering.
Economics expert Duncan Weldon has written a interesting thread about today’s bond market developments.Economics expert Duncan Weldon has written a interesting thread about today’s bond market developments.
He argues that the slump in bond yields shows anxiety about growth prospects, but not necessarily a recession.He argues that the slump in bond yields shows anxiety about growth prospects, but not necessarily a recession.
Why? Because previous recessions have often been caused by rising interest rates (to cool inflation), while today’s central banks are likely to cut borrowing costs (where possible) to stimulate growth.Why? Because previous recessions have often been caused by rising interest rates (to cool inflation), while today’s central banks are likely to cut borrowing costs (where possible) to stimulate growth.
Will there be a UK/US recession now the yield curve has inverted? A mini-thread.Will there be a UK/US recession now the yield curve has inverted? A mini-thread.
First, an explainer.What’s a yield curve inversion?Well, it’s when the cost of government borrowing is lower for longer term borrowing than shorter term borrowing. I.e. when the yield on 2 Year government bonds is higher than on 10 year bonds.First, an explainer.What’s a yield curve inversion?Well, it’s when the cost of government borrowing is lower for longer term borrowing than shorter term borrowing. I.e. when the yield on 2 Year government bonds is higher than on 10 year bonds.
That *shouldn’t* happen often. Lending for longer should have a higher risk premium attached. A longer term loan is riskier. And *should* attract a higher yield.That *shouldn’t* happen often. Lending for longer should have a higher risk premium attached. A longer term loan is riskier. And *should* attract a higher yield.
But, “risk free” (let’s be honest - neither the UK nor the US likely to default!) rates aren’t really about credit risk. They are about market expectations of future central bank policy rates.But, “risk free” (let’s be honest - neither the UK nor the US likely to default!) rates aren’t really about credit risk. They are about market expectations of future central bank policy rates.
So UK & US government 2 year borrowing costs being below 10 year borrowing costs is seen as a recession indicator. It suggests that central banks will be cutting rates soon, and CBs do that when the economy turns down.So UK & US government 2 year borrowing costs being below 10 year borrowing costs is seen as a recession indicator. It suggests that central banks will be cutting rates soon, and CBs do that when the economy turns down.
Historically, US yield curve inversions (2 year government debt attracting a higher yield than 10 year) have *always* been followed by recession.Historically, US yield curve inversions (2 year government debt attracting a higher yield than 10 year) have *always* been followed by recession.
But, and the but is important here, they’ve usually been associated with rising short term interest rates not falling long term ones.But, and the but is important here, they’ve usually been associated with rising short term interest rates not falling long term ones.
And, in countries like Japan - which has experienced lownlong term rates for years, the curve has often inverted without a recession following.And, in countries like Japan - which has experienced lownlong term rates for years, the curve has often inverted without a recession following.
And, in countries like Japan - which has experienced lownlong term rates for years, the curve has often inverted without a recession following.And, in countries like Japan - which has experienced lownlong term rates for years, the curve has often inverted without a recession following.
And let’s be honest... thinking a yield curve inversion means a recession is odds on... puts a lot of faith in the predictive power of the bond market.And let’s be honest... thinking a yield curve inversion means a recession is odds on... puts a lot of faith in the predictive power of the bond market.
I think a better read of the current pricing is that investors in UK and US longer term bonds think that longer term growth prospects are weak. Not that a recession is imminent.I think a better read of the current pricing is that investors in UK and US longer term bonds think that longer term growth prospects are weak. Not that a recession is imminent.
Bloomberg’s Michael McDonough makes a good point – who will get the blame if America slides into recession?Bloomberg’s Michael McDonough makes a good point – who will get the blame if America slides into recession?
Many economists would point to the US–China trade war, which has disrupted the global economy and contributed to the slowdown.Many economists would point to the US–China trade war, which has disrupted the global economy and contributed to the slowdown.
President Trump, though, has already blamed the US Federal Reserve for raising interest rates too high (nine times since the financial crisis ended), and being too slow to respond (its first cut in a decade came last month)President Trump, though, has already blamed the US Federal Reserve for raising interest rates too high (nine times since the financial crisis ended), and being too slow to respond (its first cut in a decade came last month)
Recession Probability Measures: (If in the end there is a recession, triggered by an escalating trade war, will it be known as the "Trump recession" or will blame somehow be placed on the Fed? I imagine this would matter a lot ahead of 2020) pic.twitter.com/tw2VbLKX0SRecession Probability Measures: (If in the end there is a recession, triggered by an escalating trade war, will it be known as the "Trump recession" or will blame somehow be placed on the Fed? I imagine this would matter a lot ahead of 2020) pic.twitter.com/tw2VbLKX0S
The Fed’s next meeting is on September 17-18, where it could lower borrowing costs again.The Fed’s next meeting is on September 17-18, where it could lower borrowing costs again.
But Steen Jakobsen, chief economist & CIO at Saxo Bank, claims the Fed might have to unleash an emergency rate cut to calm the markets.But Steen Jakobsen, chief economist & CIO at Saxo Bank, claims the Fed might have to unleash an emergency rate cut to calm the markets.
He told clients today that the Fed is behind the curve:He told clients today that the Fed is behind the curve:
The only way to ‘move’ the market now in my opinion being moving [rates] between scheduled meetings.The only way to ‘move’ the market now in my opinion being moving [rates] between scheduled meetings.
They need to produce faster or more. Both are likely, but by faster would be my choice! Rip off the band aid.They need to produce faster or more. Both are likely, but by faster would be my choice! Rip off the band aid.
Here’s a video clip of White House trade adviser Peter Navarro predicting hefty cuts to US interest rates this autumn:Here’s a video clip of White House trade adviser Peter Navarro predicting hefty cuts to US interest rates this autumn:
#NEW Peter Navarro says interest rates most likely to be cut 50 bases points in September and 25 in December [toatl of 75 and maybe in reverse order]Also, @realDonaldTrump to remove certain tariffs for the holiday season. pic.twitter.com/eZ6gZmxB4C#NEW Peter Navarro says interest rates most likely to be cut 50 bases points in September and 25 in December [toatl of 75 and maybe in reverse order]Also, @realDonaldTrump to remove certain tariffs for the holiday season. pic.twitter.com/eZ6gZmxB4C