SYDNEY (BLOOMBERG) – A rout in global stocks endured in Asia on Thursday (Aug 15) after United States equities tumbled and a closely watched part of the Treasury yield curve inverted, raising recession fears. US treasuries steadied.
Japan’s Topix index opened about 2 per cent lower, less than the nearly 3 per cent tumble seen in the S&P 500 Index on Wednesday. Treasuries stabilised after the 10-year rate slid below the two-year for the first time since 2007.
Bonds also climbed in Australia and New Zealand, following gains across Europe, with the UK yield curve inverting for the first time since the financial crisis and Bund yields sliding to a fresh record low. Crude oil extended losses.
Warnings flashing in bond markets are spooking investors who are already seeking shelter from the fraught geopolitical climate and the impact of the global trade war. While curve inversions normally precede economic downturns, they do not necessarily signal an imminent collapse in growth. The Federal Reserve will likely be powerless to keep the US economy from falling into a recession and the 10-year yield could sink to zero by 2021, said JPMorgan Chase & Co’s Jan Loeys.
“You no longer have anything anchoring markets, you no longer have the Fed’s ability to repress financial volatility,” Mohamed El-Erian, Allianz chief economic adviser and Bloomberg Opinion columnist, told Bloomberg TV. “The answer is more pro-growth policies to lift structural impediments, and unfortunately, that’s unlikely to materialise. That’s the big concern looking forward.”
Meantime, European shares lost more than 1.5 per cent after Germany’s economy contracted in the second quarter, adding to angst fuelled by weak Chinese retail and industrial numbers.
Here are the main moves in markets:
Japan’s Topix index fell 2 per cent as of 9.03am in Tokyo.
Futures on the S&P 500 Index added 0.2 per cent. The underlying gauge fell 2.9 per cent on Wednesday.
Australia’s S&P/ASX 200 Index lost 0.8 per cent.
The yen was at 105.89 per dollar after jumping 0.8 per cent the prior session.
The offshore yuan was at 7.0489 per dollar.
The Bloomberg Dollar Spot Index dipped 0.1 per cent.
The euro bought US$1.1143, little changed.
The yield on 10-year Treasuries remained at 1.58 per cent.
Australia’s 10-year yield slid four basis points to 0.9 per cent.
Gold was at US$1,517.33 an ounce after surging 1 per cent.
West Texas Intermediate crude decreased 0.5 per cent to US$54.93 a barrel.