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Shares fall steeply in Asia as financial markets rocked by recession warnings – business live Shares fall steeply in Asia as financial markets rocked by recession warnings – business live
(32 minutes later)
European bank shares are down this morning, hit by anxiety that Germany could be sliding into recession (possibly followed by the US next year, if the yield curve is to be believed).
Ouch! Deutsche Bank shares drop below €6 as German 10y yields hit fresh low at -0.65%. pic.twitter.com/NVtrnlA4Ld
The Financial Times is also concerned by the surge in bond prices, saying:
A sharp rally in government bonds set fresh records on Thursday, with the yield on 30-year US government bonds falling below 2 per cent for the first time as investors sought safety amid growing fears over the global economy.
Traders have dumped riskier assets such as stocks and crude oil and moved into perceived “havens”, including bonds, sending their yields lower. On Wednesday a closely watched metric in the US government bond market turned negative, raising new recession concerns. That indicator, the yield curve, remained inverted in Thursday morning trading in London.
In a new sign of the flight into bonds, the 30-year US Treasury bond yield dropped 5 basis points to 1.9776%, its lowest level on records that go back to the 1970s and the first time it has fallen below 2% https://t.co/XKEiyLWjPw pic.twitter.com/VOtjhwil7P
Anxiety over the global economy sent Japan’s stock market to a six-month low today.
Our new friend, the US inverted yield curve, is being blamed (although it isn’t an infallible recession indicator) .
Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co, says:
“The yield curve inversion prompted more investors to become concerned about the growth outlook,”
Nikkei falls to 6-month low on worries about global economy https://t.co/rud3Spghzk
The UK government bond yield curve has also inverted for the second day running.
That’s because the rate of return on 10-year British gilts has dropped to 0.451%, below below the two-year bond which is yielding 0.455%.
As with America’s Treasuries, that shows investors are accepting a lower rate of return for longer-term lending than shorter-term lending.
Does that mean Britain is plunging into recession? Not necessarily. As economist Rupert Seggins points out, the UK yield curve has been an unreliable forecaster of economic trends. It did invert before three recessions, but also inverted on four other occasions when a recession wasn’t looming.
UK yield curve inversions (2 year Gilt rate higher than 10 year Gilt rate) have been pretty much 50/50 as a recession signal since 1970. Preceded 3, falsely signalled 4 and was late to the party once. Usually tied to some major domestic or global event though. pic.twitter.com/IIrFVY7Q4x
2. Unsurprisingly, the UK yield curve often moves similarly to the US', but post crisis the two have tracked almost identically, barring a brief split following the Trump tax cuts. pic.twitter.com/6Vw6MA7J7Z
Another important point is that Britain can borrow very cheaply right now -- perhaps for growth-boosting infrastructure programme?
Mark Haefele, chief investment officer at UBS Global Wealth Management, is urging us all not to get obsessed by the inversion of the US yield curve.Mark Haefele, chief investment officer at UBS Global Wealth Management, is urging us all not to get obsessed by the inversion of the US yield curve.
He points out that the tumble in longer-dated borrowing costs won’t have much economic impact on its own --it’s mainly an indicator of market sentiment. And, he argues, it doesn’t mean shares are about to crash.He points out that the tumble in longer-dated borrowing costs won’t have much economic impact on its own --it’s mainly an indicator of market sentiment. And, he argues, it doesn’t mean shares are about to crash.
Haefele explains:Haefele explains:
The length of time the yield curve is inverted, and how much is inverted, matter. If Fed rate cuts successfully steepen the curve comfortably into positive territory, this brief curve inversion may be a premature recession signal.The length of time the yield curve is inverted, and how much is inverted, matter. If Fed rate cuts successfully steepen the curve comfortably into positive territory, this brief curve inversion may be a premature recession signal.
Neither does a yield curve inversion indicate it is time to sell equities. Since 1975, after an inversion in the 2-year/10-year yield curve, the S&P 500 has continued to rally for nearly two years, and has risen by 40% on average until hitting a bull market peak.”Neither does a yield curve inversion indicate it is time to sell equities. Since 1975, after an inversion in the 2-year/10-year yield curve, the S&P 500 has continued to rally for nearly two years, and has risen by 40% on average until hitting a bull market peak.”
Energy and financial stocks are down in London this morning, a sign that traders are pessimistic about growth prospectsEnergy and financial stocks are down in London this morning, a sign that traders are pessimistic about growth prospects
And we’re off!And we’re off!
European markets are open, and inching higher in early trading.European markets are open, and inching higher in early trading.
The Stoxx 600 index, which contains a broad sweep of EU companies, has risen by 0.3% -- hardly a major recovery from Wednesday’s 1.8% tumble.The Stoxx 600 index, which contains a broad sweep of EU companies, has risen by 0.3% -- hardly a major recovery from Wednesday’s 1.8% tumble.
But in London. the FTSE 100 has dropped by 14 points to 7,132, back towards yesterday’s lows. Traders are nervous, following the losses in Asia overnight and the 3% plunge on Wall Street last night.But in London. the FTSE 100 has dropped by 14 points to 7,132, back towards yesterday’s lows. Traders are nervous, following the losses in Asia overnight and the 3% plunge on Wall Street last night.
Alex Kuptsikevich, financial analyst at FX Pro, fears that investors could talk themselves into a crisis:Alex Kuptsikevich, financial analyst at FX Pro, fears that investors could talk themselves into a crisis:
The most dangerous thing in this situation is that market fears of recession could end up fuelling further demand for safe havens, further intensifying the anxiety of stock markets.The most dangerous thing in this situation is that market fears of recession could end up fuelling further demand for safe havens, further intensifying the anxiety of stock markets.
Recession fears are also driving investors into German government debt - another safe haven (even though Germany may be sliding into recession).Recession fears are also driving investors into German government debt - another safe haven (even though Germany may be sliding into recession).
The yield on German 30-year bonds has fallen below minus 0.2% for the first time ever.The yield on German 30-year bonds has fallen below minus 0.2% for the first time ever.
That negative bond yield means asset managers are prepared to pay for the privilege of lending to Berlin, and not get their money back until 2049. Hardly a sign of optimism in the global economy.That negative bond yield means asset managers are prepared to pay for the privilege of lending to Berlin, and not get their money back until 2049. Hardly a sign of optimism in the global economy.
[Reminder: Bond yields, a broad measure of the interest rate on a bond, fall when prices rise].[Reminder: Bond yields, a broad measure of the interest rate on a bond, fall when prices rise].
Morning all. City traders are bracing for another volatile session, after European stock markets hit their lowest levels in six months yesterday.Morning all. City traders are bracing for another volatile session, after European stock markets hit their lowest levels in six months yesterday.
Alarmingly, the US yield curve is inverting again this morning, suggesting investors are worried that a recession is looming.Alarmingly, the US yield curve is inverting again this morning, suggesting investors are worried that a recession is looming.
The yield (rate of return) on America’s 10-year Treasury bills has fallen below the yield for the 2-year bond for the second day running. Investors are now getting just 1.57% on the ten year, or 1.58% on the two-year bond.The yield (rate of return) on America’s 10-year Treasury bills has fallen below the yield for the 2-year bond for the second day running. Investors are now getting just 1.57% on the ten year, or 1.58% on the two-year bond.
That’s worrying -- longer-dated bonds ought to trade at a higher yield, to compensate for the extra risk of lending money for longer, and for the erosion of inflation.That’s worrying -- longer-dated bonds ought to trade at a higher yield, to compensate for the extra risk of lending money for longer, and for the erosion of inflation.
US yield curve remains inverted for the second day....US yield curve remains inverted for the second day....
As many experts have been racing to tell us, an inverted yield curve has been a reliable indicator that a recession is looming (although it can take more than a year to arrive).As many experts have been racing to tell us, an inverted yield curve has been a reliable indicator that a recession is looming (although it can take more than a year to arrive).
Investors are certainly piling into US government debt, looking for a safe place to store their money.Investors are certainly piling into US government debt, looking for a safe place to store their money.
That’s why the yield on American 30-year government bonds plunged below 2% for the first time ever. That’s an astonishingly low return on your investment - basically matching America’s inflation rate.That’s why the yield on American 30-year government bonds plunged below 2% for the first time ever. That’s an astonishingly low return on your investment - basically matching America’s inflation rate.
US government still letting people store their money with the world's most powerful institution for 30yrs, for free in real terms! Unbelievable deal. pic.twitter.com/ldMMLITeMHUS government still letting people store their money with the world's most powerful institution for 30yrs, for free in real terms! Unbelievable deal. pic.twitter.com/ldMMLITeMH
I’m about to hand over to my colleagues in London but here’s what you need to know on a day when concerns about recession in the US, Germany and China have plagued markets in Asia.I’m about to hand over to my colleagues in London but here’s what you need to know on a day when concerns about recession in the US, Germany and China have plagued markets in Asia.
Asian stocks have fallen across the board although losses were not as bad as in Wall Street on Wednesday.Asian stocks have fallen across the board although losses were not as bad as in Wall Street on Wednesday.
The Nikkei was down 1.2% in the afternoon while the Shanghai Composite is off 0.4% and the Hang Seng is flat.The Nikkei was down 1.2% in the afternoon while the Shanghai Composite is off 0.4% and the Hang Seng is flat.
The biggest falls were in Australia where the ASX200 has lost almost 3%, wiping around A$60bn off the value of shares.The biggest falls were in Australia where the ASX200 has lost almost 3%, wiping around A$60bn off the value of shares.
Oil has continued to tumble. Brent crude has lost another 0.6% to $59.12 a barrel, after shedding 3% on Wednesday. US crude was down 0.4% at $55.03.Oil has continued to tumble. Brent crude has lost another 0.6% to $59.12 a barrel, after shedding 3% on Wednesday. US crude was down 0.4% at $55.03.
Gold rose 0.3% to $1,521.00 per ounce and is close to its highest since April 2013.Gold rose 0.3% to $1,521.00 per ounce and is close to its highest since April 2013.
The yield on 30-year US treasuries has fallen below 2% for the first time ever in another sign that interest rates are set to remain lower for longer.The yield on 30-year US treasuries has fallen below 2% for the first time ever in another sign that interest rates are set to remain lower for longer.
Some analysts pushed back a bit on fears that the inverted US bond yield curve seen on Wednesday – and which sparked the 800-point fall in the Dow – is as crucial as some believe.Some analysts pushed back a bit on fears that the inverted US bond yield curve seen on Wednesday – and which sparked the 800-point fall in the Dow – is as crucial as some believe.
Futures trade points to a positive start in London and New York later.Futures trade points to a positive start in London and New York later.
Thanks for joining me.Thanks for joining me.
Ouch. The ASX200 suffers its worst day since February 2018. It’s down 2.85% at 6,408. Around A$60bn removed from values.
The Australian market is now off 2.9%, or 187 points, at 6.408 points, but we’ll know the full damage when trading closes in a few minutes. It’s easily the worst performer in Asia Pacific where traders have reduced losses in Hong Kong and Shanghai. Japan is down 1.2%.
Meanwhile, European markets are opening in an hour.
IG are calling the market openings:
European Opening Calls:#FTSE 7115 -0.47%#DAX 11512 +0.16%#CAC 5258 +0.13%#MIB 20065 +0.22%#IBEX 8537 +0.17%
In Australia the ASX has slumped by 2.8%, a real bloodbath for a market that hit an all-time high just a couple of weeks ago.
The AMP economist Shane Oliver has been looking at today’s employment figures and he reckons the signs aren’t that great going forward.
...Aust jobs leading indicator continues to point to slowing jobs growth ahead and an upwards drift in unemployment... pic.twitter.com/NOpXHj5O8F
..ratio of employment to working age pop in Aust is strong. Only issue is that participation has gone up too and there are more part time relative to full time jobs than desired... pic.twitter.com/WArorhVk3D
..so unemployment + underemployment remains very high. As long as this remains the case its hard to see a pick up in wages growth. Even in the US where U6 is 7% wages growth is still only around 3%yoy pic.twitter.com/Q1rb2yWbzM
And our own Greg Jericho has weighed in:
Not surprising that the seas adj underemployment rate bounced back up after last month's pretty bizarre fall. But the trend rate is now looking rather less good and makes the task of getting it to a rate that will see wage growth improve that much harder pic.twitter.com/qVsWYBZDNH
No blog is complete without a word from Holger.
Stocks spooked as bond mkts scream recession. Asia equities follow Wall St slide, but off lows as 800point drop in Dow seems overdone & US Futures bounce. Bonds push higher w/US 10y yields at 1.55%, US Inversion deepens w/US2s10s spread at -0.3bps. Oil extends drop. Bitcoin <$10k pic.twitter.com/wiWt7KjuD7
Oops! US 30y yields drop below 2% for first time in history as bond mkts scream recession. pic.twitter.com/KHTtyRdNvc
The Dutch economy seems in pretty good shape and will grow by 1.4% in 2020. But that is slower than expected because exports have been hit by weakening growth in Germany, Brexit and US trade policies, the country’s forecasting body CPB has said.
Growth in 2019 is expected to be a bit stronger than earlier expected at 1.8%, after a 2.6% expansion last year.
That compares favourably with GDP data from Germany yesterday which showed the powerhouse economy contracting by 0.1% in the June quarter.
Looking beyond Australia, Stephen Innes of Valour Markets in Singapore has written a note to clients in which he says the Fed will now be forced to cut rates again and possibly “much more profoundly than they expected”. China’s central bank could also come to the party with another stimulus package.
The steep falls in Asian markets on Thursday show that shell-shocked traders are “hoping for the best on the policy front but positioning for the worst on the economic backdrop”.
Surely the world’s central bankers are not going to allow President Trump tariff threats to snatch defeat from the jaws of victory. Not yet, anyway. Not while there’s still some monetary firepower left in their arsenal.
The Fed, now out of necessity alone will need to adjust policy much more profoundly than they expected. While the threat of addition tariffs will make Beijing more accommodative to easing as policymakers have numerous avenues and a high degree for flexibility to respond. Suggesting that mainland’s accommodative policies including infrastructure, fiscal and monetary measures will be aggressively dialled up in coming months. Even as trade tensions alternate between simmer and boil, a PBOC and Fed policy deluge could go a long way to establishing risk sentiment.
Whether it’s boom or gloom, the Australian stock market is being smashed at the moment.
The benchmark ASX200 is down 2.7% today, a fall of 179 points to 6,416. That’s a loss of more than A$50bn on this morning’s opening prices and it could be the worst day since 25 October last year when shares fell 2.8% on the day.
Telcos are down heavily after the poor Telstra numbers earlier and tech losses on Wall Street. Energy stocks are also being hammered because of the falling oil price.
Afternoon Update: #ASX200 Sector Performance #ausbiz #markets pic.twitter.com/7hoqyBPzHL
ASX 200 shows little response to the better than expected employment growth in July, with the Index remaining within sight of session lows #ausbiz #ASX200 pic.twitter.com/rfXjnbVPGa
How good is Donald Trump. #asx #asx200 pic.twitter.com/XP33i0XtTd
The Australian jobs figures from earlier have, as usual, produced some difference of opinion.
In the bullish camp is Craig James, the chief economist at Commsec. He notes that overall employment has risen for the 33rd time in 34 months, up by 41,100 jobs in July against predictions of 14,000. Full-time jobs rose by 34,500 with part-time jobs up by 6,700. James writes:
What is the definition of a strong job market? We would contend that it is one where employment is rising, more people are participating in the job market and where the jobless rate remains historically low. Australia has a strong job market. While the jobless rate in Australia is higher than the US, UK and New Zealand, in Australia job growth remains strong and more people are drawing down a wage. Retailers want to see more people with jobs because that converts to more opportunities to sell their goods and services.
If you’re not sure, you’ll find a note of scepticism from the UBS economist George Tharenou who doesn’t think that it’s game, set and match for the Great Australian Economy just yet. He still thinks the RBA will cut rates agin in October and February.
While jobs rebounded, our labour demand index at a 5-year low still suggests a drop ahead to ~1¼% y/y; & wages remain soft amid higher unemployment. Given the RBA will “monitor …the labour market closely & adjust monetary policy if needed” – & weak hours support our Q2 GDP forecast of 0.5% (1.4% y/y), below mkt (0.6%) & RBA (¾%) – we still expect rate cuts in Oct & Feb, with trade wars raising the risk of more.
Traders in Tokyo are back from their lunch and the Nikkei is on the slide. It’s down 1.55% to 20,333. The Hang Seng has slipped as well and is up just 0.03%.
And London is now on course to slide into the red when it opens this morning. And the Dax30 in Frankfurt. The Dow is still on the dancefloor though and looking at a modest bounce of 30 points or 0.13%.