Global stocks drop as warning rings louder in bond market
Adam Haigh and Todd White, Bloomberg
Stocks retreated globally along with US equity futures while sovereign bonds rallied as investors drove yields down to multi-year lows on a fresh wave of risk aversion.
Gold climbed with the yen.
Declines in miners and banks pulled the Stoxx Europe 600 Index lower, after equities in Japan and South Korea bore the brunt of losses in Asia. Chinese shares edged higher.
The rally in 10-year Treasuries further inverted a part of the yield curve watched for its history of signalling recessions.
Benchmark yields slid to the lowest since 2016 in Japan, to a record low in New Zealand and below the central bank’s policy rate in Australia. The dollar edged higher versus its major counterparts for a third day.
The yuan weakened after earlier holding steady following news that the People’s Bank of China had injected the most in money-market operations since January.
Investors are gauging warning signals flashing in fixed-income markets with little expectation of a quick improvement in the economic growth outlook or the US-China trade war, as the full impact of American tariff hikes is yet to kick in.
Beijing is gearing up to use its dominance of rare earths as a counter to Washington. A raft of American data tomorrow will give traders more to chew on as they reassess the Federal Reserve’s policy path.
“The drop of the US Treasury yield is an indicator of growing uncertainty,” Lena Komileva, chief economist at G Plus Economics Ltd., told Bloomberg TV in London. “It’s quite clear now that we are past that cyclical peak for earnings and the cyclical trough in credit spreads.”
Treasuries are “going to be very well-supported here,” she added.
The gap between three-month and 10-year rates fell to minus 12 basis points Wednesday, the most since 2007 after breaking past a March level.
“Certainly the fact that it has inverted to a greater extent in the last couple of days than we’ve seen previously must be ringing a couple of alarm bells,” Jonathan Garner, chief Asia and emerging-market strategist at Morgan Stanley, told Bloomberg TV.
He expects to see the 10-year yield moving “down toward 2%.”
Elsewhere, West Texas oil futures dropped, losing all of their gains from Tuesday, as they dipped below $59 a barrel in New York.
https://www.fin24.com/Markets/markets-live-global-stocks-drop-as-warning-rings-louder-in-bond-market-20190529
2019-05-29 07:40:00Z
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