Stock Sell-Off Deepens in Asia on Recession Fears: Markets Wrap

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A sell-off in global stocks continued in Asia after U.S. equities tumbled as a closely watched part of the Treasury yield curve inverted Wednesday, raising recession fears. Treasuries steadied.

Japan’s Topix index opened about 2% lower, less than the nearly 3% tumble seen in the S&P 500 Index Wednesday. Treasuries stabilized 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 U.K. 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 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.”

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:

Stocks

  • Japan’s Topix index fell 1.9% as of 9:16 a.m. in Tokyo.
  • Futures on the S&P 500 Index added 0.2%. The underlying gauge fell 2.9% Wednesday.
  • Australia’s S&P/ASX 200 Index lost 0.8%.

Currencies

  • The yen was at 105.89 per dollar after jumping 0.8% the prior session.
  • The offshore yuan was at 7.0489 per dollar.
  • The Bloomberg Dollar Spot Index dipped 0.1%.
  • The euro bought $1.1143, little changed.

Bonds

  • The yield on 10-year Treasuries remained at 1.58%.
  • Australia’s 10-year yield slid four basis points to 0.9%.

Commodities

  • Gold was at $1,517.33 an ounce after surging 1%.
  • West Texas Intermediate crude decreased 0.5% to $54.93 a barrel.

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