‘Flashing amber’: Stocks tumble, bonds rally on US recession risk

SYDNEY: Investors ditched shares on Monday and fled to the safety of bonds as risk assets fell out of favour on growing fears of a US recession, sending global yields plunging.

The gloomy mood was expected to spread across Europe and US markets, Spreadbetters showed, with London’s FTSE futures off 0.3 per cent and E-minis for the S& P 500 skidding 0.5 per cent.

MSCI’s broadest index of AsiaPacific shares outside Japan dropped 1.5 per cent to a oneweek trough in a broad equities sell- off in the region.

Japan’s Nikkei hit a five week low after diving 3.1 per cent for its largest one- day per centage fall since late December. South Korea’s Kospi index declined 1.7 per cent while Australian shares faltered 1.1 per cent.

Chinese shares was also in the red with the blue- chip CSI 300 index down 1.4 per cent.

Concerns about the health of the world economy heightened last week after cautious remarks by the US Federal Reserve sent 10-year treasury yields to the lowest since early 2018.

US 10-year treasury yields were last 1.9 basis points below three-month rates after yields inverted for the first time since 2007 on Friday.

Historical ly, an inverted yield curve – where long-term rates fall below short- term – has signalled an upcoming recession.

“The bond market price action is an enormous blaring siren to anyone trying to be optimistic on stocks,” JPMorgan analysts said in a note to clients.

“Growth, and bonds/yield curves, will be the only thing stocks should be focused on going forward and it’s very hard to envision any type of rally until economic confidence stabilizes and bonds reverse,” it added.

Compounding fears of a more widespread global downturn, manufacturing output data from Germany showed a contraction for the third straight month.

In the United States, preliminary measures of manufacturing and services activity for March showed both sectors grew at a slower pace than in February. — Reuters