TOKYO: Global stocks slumped to more than two-month lows in early Asian trade on Thursday (Aug 15), tracking the Wall Street slide as an inverted US bond yield curve sent a flashing warning to investors about rising recession risks.
Yields on 10-year US Treasury notes fell below the two-year yield, intra-day, for the first time since 2007, in what is known as a yield curve inversion and widely seen by investors as a sign that a recession is coming.
Asia shares sank at the open with Japan’s Nikkei average tumbling 2.0 per cent in opening trade and Australian stocks falling 1.9 per cent.
Just before 11am local time, the Nikkei share average was down 1.3 per cent at 20,387.17. The index had touched 20,184.85, its lowest since Aug 6.
Hong Kong shares dropped at the open Thursday, tracking massive losses on Wall Street as poor Chinese and German data fuelled concern over the global economy.
The Hang Seng Index fell 1.47 per cent, or 372.61 points, to 24,929.67 at the open, as confidence in the economy wanes and protests in the financial hub show no sign of abating.
The benchmark Shanghai Composite Index declined 1.66 per cent, or 46.57 points, to open at 2,762.34. The Shenzhen Composite Index, which tracks stocks on China’s second exchange, opened 2.08 percent, or 31.45 points lower, at 1,477.55.
The MSCI ACWI, which incorporates readings of 49 equity markets across the world, shed 2.1 per cent to its lowest level since Jun 4, while E-Mini futures for the S&P 500 lost 0.1 per cent in early Asia.
“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 ever. A dip below 2 per cent took the entire curve up to 30 years below official interest rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.4 per cent in early trade.
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.
CURRENCIES RELATIVELY CALM
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 per cent to US$1.1144. 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.
Oil prices shed 3 per cent on Wednesday after fresh Chinese and European economic data revived global demand fears and US crude inventories rose unexpectedly for the second week in a row.
In early Asian trade, US West Texas Intermediate (WTI) crude futures dropped 0.7 per cent to US$54.82 a barrel, having lost 3.3 per cent in the previous session.
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 US$1,518.55 per ounce early Thursday, flat on the day and not far from its six year high marked Tuesday.