INSUBCONTINENT EXCLUSIVE:
TOKYO: Global stocks crumbled and oil prices extended a punishing sell-off on Thursday as an inverted US bond yield curve intensified fears
Markets in Asia were already on the backfoot after all three major US stock indexes closed down about 3 per cent overnight, with the
blue-chip Dow posting its biggest one-day point drop since October.
The tumult in stocks was triggered by an overnight intraday fall in
yields of 10-year US 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.
Global growth woes have mounted in recent months, especially as a bruising trade war
between the United States and China showed signs of dragging on in a blow to businesses and consumers.
The debilitating effects of the
Sino-US trade war on growth was on full display this week as Germany's economy contracted in the second quarter and a raft of Chinese
economic data pointed to deepening gloom in the Asian powerhouse.
MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.9 per
cent in early trade, while Japan's Nikkei average tumbled 1.4 per cent and Australian stocks sank 2.1 per cent.
Chinese markets were also
hit, with the benchmark Shanghai Composite and the blue-chip CSI300 down 1.1 per cent and 1.0 per cent, respectively, while Hong Kong's Hang
Seng lost 0.8 per cent.
"The yield curves are all crying timber that a recession is almost a reality and investors are tripping over
themselves to get out of the way as economic recession hurts corporate earnings and stocks can drop as much as 20 per cent," said Chris
Rupkey, chief financial economist at MUFG Union Bank.
In early Asian trade, 10-year US Treasury yields dipped to their lowest in 3 years,
while the 30-year yields fell to as low as 1.991 per cent, below the 2 per cent floor for the Federal Reserve policy rate for the first time
A dip below 2 per cent took the entire curve up to 30 years below official interest rates.
The US stock futures managed to steady a little
in Asian trading, erasing earlier losses.
Kerry Craig, a global markets strategist at J.P
Morgan Asset Management, said investors should also take note of how significantly markets had changed in the last decade, which meant a
yield curve inversion might not be the harbinger it once was.
“Yield curve inversion is flashing a warning sign – investors should check
their portfolios are resilient
But it’s not a reason to panic or to lean into the sell-off,” he said in a note.
Still, oil prices fell on Thursday to extend steep
overnight losses as US crude inventories unexpectedly rose, fears of recession mounted and economic data out of China and Europe
Yet gold prices remained stable on Thursday after rising on safe-haven buying in the previous trading session.
Brent crude was down 0.8 per
cent, at $59.03 a barrel, after falling 3 per cent in the last session, while US crude fell 0.5 per cent to $54.96 a barrel, having dropped
3.3 per cent in the previous session.
As bond markets flashed concern about recession on Wednesday and major stock indices cratered, US
President Donald Trump put the blame squarely on the Fed for continuing to raise rates through the end of last year.
"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," Trump tweeted on late Wednesday.
Senior US officials said on Wednesday China has made no trade concessions after Trump
postponed the 10 per cent tariffs on over $150 billion worth of Chinese imports, the latest sign that efforts to reach a trade deal were
going nowhere.
Major currencies were relatively calm, with the dollar index easing 0.1 per cent to 97.936 and the euro adding a marginal 0.1
The Japanese yen was steady versus the greenback at 105.93 per dollar, having firmed 0.8 per cent on Wednesday.
"The markets are digesting
the sharp overnight setback, triggered by the inverted yield curve
But I think we'll see some calmness back before long since the US curves inverted only temporarily, not on a closing basis," said Masahiro
Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.
Gold rose over 1 per cent on Wednesday as an inverted US Treasury yield
curve and weak euro zone data drove investors toward safe-haven bullion.
Spot gold stood at $1,518.55 per ounce early Thursday, flat on the
day and not far from its six year high marked Tuesday.