- U.S. Treasury yield curve inverts; S&P 500 slumps 2.9%
- Futures point to heavy losses for Japan, Hong Kong equities
Stocks in Asia were poised to join a global sell-off after U.S. equities tumbled and a closely watched part of the Treasury yield curve inverted, raising recession fears. Treasuries surged.
Futures indicated losses of more than 2% in Japan. The S&P 500 Index tumbled almost 3% on Wednesday as the 10-year Treasury rate slid below the two-year for the first time since 2007. The 30-year yield fell to the lowest on record. Bonds also climbed across Europe, with the U.K. yield curve inverting for the first time since the financial crisis and Bund yields sliding to a fresh record low. Gold surged and crude oil slumped.
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 U.S. 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 Advisor & Bloomberg Opinion columnist, told Bloomberg TV. “The answer is more pro-growth policies to lift structural impediments and unfortunately that’s unlikely to materialize. That’s the big concern looking forward.”
Meantime, European shares lost more than 1.5% after Germany’s economy contracted in the second quarter, adding to angst fueled by weak Chinese retail and industrial numbers.
Here are the main moves in markets:
- Futures on the S&P 500 Index dipped 0.1% as of 7:52 a.m. in Tokyo. The underlying gauge fell 2.9% Wednesday.
- Futures on Japan’s Nikkei 225 fell 2.4%.
- Hang Seng Index futures earlier declined 1.5%.
- Futures on Australia’s S&P/ASX 200 Index lost 2.1%.
- The yen was at 105.84 per dollar after jumping 0.8% the prior session.
- The offshore yuan was at 7.0547 per dollar.
- The Bloomberg Dollar Spot Index dipped 0.1%.
- The euro bought $1.1143, little changed.
- The yield on 10-year Treasuries sank 12 basis points to 1.58%.
- Australia’s 10-year yield slid four basis points to 0.9%.
- Gold were at $1,517.33 an ounce after surging 1%.
- West Texas Intermediate crude decreased 0.9% to $54.75 a barrel.