Tuesday, 19 November, 2019

Economy Flashes More Warning Signs as Treasurys Sink to ‘Historic’ Lows

Countdown to Catastrophe? What the Yield Curve Means for Stock Bull MarketsMore Countdown to Catastrophe? What the Yield Curve Means for Stock Bull MarketsMore
Russell Knight | 16 August, 2019, 16:50

US stocks suffered the worst day of the year Wednesday as bond market flashed a warning sign of recession.

China's threat to impose counter-measures in retaliation for the latest USA tariffs knocked stocks sprawling on Thursday, checking earlier attempt to recover from a rout sparked by fears of a world recession.

Market benchmarks in Shanghai, Tokyo and Hong Kong all retreated.

US investors dumped stocks Wednesday, sending the Dow Jones Industrial Average into its biggest one-day drop of the year, after the yield on 10-year Treasury bonds crossed a threshold that has correctly predicted many past recessions.

Senior US officials said on Wednesday China has made no trade concessions after Trump postponed the 10 percent tariffs on over $150 billion worth of Chinese imports, the latest sign that efforts to reach a trade deal were going nowhere. Traders have said that the shipbuilder's stock is oversold but were not surprised that investors have yet to "bottom fish".

Japan's Nikkei 225 fell 1.2%, and the Hang Seng in Hong Kong rose 0.8%.

The S&P 500 fell into a bear market between November 1980 in August 1982, losing a total of 28 percent during that period. Markets in Taiwan, New Zealand and Southeast Asia also retreated. South Korea and India were also up.

A pan-European equity index opened marginally firmer while S&P500 futures rose 0.6%. This pushed the Dow down 800 points ahead of recession concerns. The Nasdaq composite lost 3% to 7,773.94.

The trade war has hammered global demand, with Chinese industrial output hitting a 17-year low while investment and retail sales have also slowed in the world's number two economy. Tech stocks and banks led the broad sell-off. Retailers came under especially heavy selling pressure after Macy's issued a dismal earnings report and cut its full-year forecast.

The major USA stock indexes spent much of the day reacting to big moves in US government bond yields, which fell sharply in the early going, fluctuated for much of the day, and then recovered some of their decline by mid-afternoon. However, a spokeswoman for the ministry later said, "We hope the USA will meet China halfway, and implement the consensus of the two heads of the two countries in Osaka".

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What Liverpool's Latest Goalie Injury Means For Caoimhin Kelleher
After an early chance for Salah, it was all Chelsea as Pedro hit the bar and Giroud shot at Adrian. Klopp was not amused by what he has seen and did not hide his feelings on the matter.

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All of the 11 primary S&P 500 sectors retreated around market close, with the energy sector down almost 4 percent, leading the laggards.

In terms of a potential recession, Falconio said they did not anticipate a recession at this time, due to the weakening yet still decent USA economic growth.

Euro zone government bond yields went further into negative territory, reflecting fear of an impending global recession after the USA yield curve remained inverted for a second day.

When the U.S. Federal Reserve cut interest rates last month for the first time in more than a decade, it signalled that further reductions in borrowing costs might not be needed. The yield on the 10-year Treasury has dropped from 2.02% on July 31 to below 1.60%.

Treasury notes below the two-year yield, the first such drop since 2007, in what is known as a yield curve inversion and widely seen as a sign of a looming recession.

Those concerns helped drive the yield on the 10-year Treasury down as low as 1.48% Thursday from 1.58% late Wednesday. Unemployment held steady at 5.2%.

The trade war with China has already been very destructive, and the political uncertainty of Trump, high debt levels and other structural weaknesses are creating problems.

But oil prices continued to fall after sinking 5% on Wednesday as fears of a global slowdown intensified.

Global benchmark Brent crude LCOc1 fell $1.25 to settle at $58.23 a barrel. It lost $1.82 the previous session to $59.48.

The dollar was little changed at 106.20 Japanese yen, compared to 106.23 yen Thursday.

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