Global equities plummet as bond markets warn of US recession

SYDNEY (Reuters) – Investors abandoned stocks Monday and fled before bond security as the Japanese yen floated near the peak of the past six weeks as risky assets plummeted in the face of growing fears of a US recession leading to a fall in global yields.

US equity futures fell, with the S & P 500's E-minis slipping 0.5%. The largest MSCI index of Asia-Pacific equities outside Japan fell 1.4% to a one-week low following a widespread sell-off in the region.

Japan's Nikkei fell 3.2% to a two-week low, Korea's Kospi dropped 1.6%, while Australian equities lost 1.3%.

Chinese equities also fell, with the CSI 300 first – order index falling 0.8%.

Friday, the three major US stock indexes recorded their largest percentage loss of a day since January 3. The Dow slipped 1.8%, the S & P 500 1.9% and the Nasdaq 2.5%.

Worries about the health of the global economy intensified last week after cautious remarks by the US Federal Reserve put 10-year cash yields at their lowest since early 2018.

US 10-year Treasury yields were 1.9 basis points lower than three-month yields, after yields reversed for the first time since 2007, on Friday. Historically, a reverse yield curve – where long-term rates are lower than short-term – has signaled an impending recession.

"The action of bond market prices is a huge deafening siren for anyone trying to be optimistic about stocks," JPMorgan analysts said in a note to clients.

"Growth and bond / yield curves will be the only thing that stocks should focus on and it's very hard to look at any type of recovery until economic confidence is stabilized and bonds are in place. will be more. "

Fearing a more generalized global slowdown, German data on manufacturing output showed a contraction for the third consecutive month. In the United States, preliminary measures of manufacturing activity and services for the month of March showed that both sectors grew at a slower pace than in February, according to data from the US. IHS Markit.

The recession model of the National Australia Bank yield curve indicates a 30-35% probability of recession in the United States over the next 10 to 18 months.

"The risk of a recession in the United States has increased and is shining day by day, which will drive markets to sharply reduce rates of Fed rate cuts," said NAB strategist Tapas Strickland. London.

As bonds rebounded on Monday, Japanese 10-year government bond yields fell to minus 9 basis points, the lowest since September 2016. Australia's 10-year yields have fallen to a 10-year low. historical lows at 1.754.

Some analysts, such as ING's Rob Carnell, have advised against rushing to bet on yield reversal.

"We believe that drawing from these data a conclusion on the recession is not warranted until the 3M-10Y yield curve has been substantially reversed," Carnell said. "Just reversed, as the markets say today, do not do it for me."

POLITICAL HEADS

Much of the concern about global growth comes from Europe and China, who are fighting separate tariff wars with the United States.

Politics was also on the agenda in the United States and Great Britain.

A nearly two-year US investigation has revealed no evidence of collusion between Donald Trump's electoral team and Russia. It was a major political victory for the US president as he was preparing for his battle for the 2020 reelection.

The political turmoil in Britain following the country's exit from the European Union also continues to weigh on risky assets.

On Sunday, Rupert Murdoch's Sun newspaper announced in an editorial on the front page that British Prime Minister Theresa May was to announce his resignation Monday as soon as his agreement on Brexit was approved.

The pound was a little lower at $ 1.3198 after three consecutive days of wild gyrations. The currency slipped 0.7% last week.

In the foreign exchange market, the Japanese yen – considered a safe haven – is near its highest level since 11 February. It was 0.1% higher than ever at 109.77 for a dollar.

The Australian dollar, a liquid substitute for the risky game, lost $ 0.7076 for its third consecutive session of losses.

In commodities, US crude fell 61 cents to 58.43 dollars a barrel. Futures contracts on Brent fell 60 cents to $ 66.43.