Gulf News

Stocks tum­ble on Wall Street tur­moil



World stocks tum­bled to one-week lows yes­ter­day as de­clines by long­dated US bond yields and a re­newal of trade con­cerns stoked fears of a down­turn in the world’s big­gest econ­omy, the United States.

US mar­kets are shut to mark for­mer Pres­i­dent Ge­orge H.W. Bush’s death, but the ef­fect of Wall Street’s tur­moil in the pre­vi­ous ses­sion, when New York­listed shares tum­bled more than 3 per cent, is be­ing felt in Asia and Europe.

That pushed MSCI’s all­coun­try in­dex down al­most half a per cent.

The de­clines came just a day af­ter an eq­uity surge driven by op­ti­mism that China and the US would sort out their trade dis­pute.

Then Pres­i­dent Don­ald Trump threat­ened “ma­jor tar­iffs” on Chi­nese im­ports if his ad­min­is­tra­tion failed to reach an ef­fec­tive trade deal with Bei­jing.

“As I look into next year, most ex­pec­ta­tions for fur­ther gains have been pared back. In­vestors have gone from ex­tended bullish­ness at the start of the year on eq­ui­ties to an un­com­fort­able neu­tral­ity,” said Paul O’Con­nor, head of multi-as­set at Janus Hen­der­son.

Trump’s com­ments, along­side the drop in US stocks and bond yields, took Asian shares out­side Ja­pan 1.5 per cent lower. Shang­hai mar­kets fell 0.6 per cent, their losses lim­ited by Chi­nese of­fi­cials ex­press­ing con­fi­dence that a trade deal would be clinched on time.

Euro­pean mar­kets opened lower, with a pan-Euro­pean in­dex down 1.2 per cent.

Bank shares pum­melled

■ debt yields fall faster than their shorter-dated coun­ter­parts.

Such an in­ver­sion of twoyear and 10-year yields, when 10-year bonds yield less than their two-year debt, has pre­ceded every US re­ces­sion in the past 50 years.

“The mar­ket de­cline in the US overnight and the flat­ten­ing of the yield curve re­flect that eco­nomic growth mo­men­tum is tak­ing over as the pri­mary con­cern for in­vestors,” Tai Hui, a strate­gist at JP Mor­gan As­set Man­age­ment, told clients.

So far, 10-year yields are cling­ing to an 11-ba­sis-point mar­gin over the two-year, although it was the small­est one in over a decade.

The flat­ten­ing of the curve gained mo­men­tum af­ter last week’s sig­nal by the Fed­eral Re­serve that it may be near­ing an end to its three-year ratein­crease cy­cle.

It has spread to the Eu­ro­zone, where the Ger­man 2-10 yield curve is at its flat­test since mid2017 at 85.70 ba­sis points.

Ger­man 10-year yields slipped to six-month lows of 0.247 per cent.

‘Flight to safety’

“There has been a huge flight to safety in the Euro­pean bond mar­ket... [Euro­pean] eq­ui­ties closed on Tues­day only modestly lower while there were sharp falls in the US,” Martin van Vliet, se­nior rates strate­gist at ING, said. “The Euro­pean bond mar­ket was al­ready pre­par­ing for trou­ble ahead.”

Mar­kets are also brac­ing for more news on the Brexit front.

Bri­tish Prime Min­is­ter Theresa May suf­fered em­bar­rass­ing de­feats on Tues­day, the start of five days of par­lia­men­tary de­bate over her plans to leave the Euro­pean Union.

The pound touched 17-month lows of $1.2659 on Tues­day, then re­cov­ered to trade around $1.2734 yes­ter­day, flat for the day.

The dol­lar has been un­der­mined by the bond mar­ket moves and re­ces­sion fears, but it has re­cov­ered from two-week lows against a bas­ket of cur­ren­cies to trade around 97, also flat on the day.

It rose 0.2 per cent to 113 yen af­ter los­ing 0.75 per cent the pre­vi­ous day against the safe­haven Ja­panese cur­rency.

The threat of slow­ing eco­nomic ac­tiv­ity also weighed on oil prices.

Brent fu­tures shed more than one per cent to $61.4 per bar­rel.

de­clines in bank shares driven by lower US yields

fall in Asian shares out­side Ja­pan af­ter Trump’s re­marks

 ?? AFP ?? In­vestors at a bro­ker­age in Hangzhou in China’s eastern Zhe­jiang prov­ince. Shang­hai mar­kets fell 0.6 per cent yes­ter­day.
AFP In­vestors at a bro­ker­age in Hangzhou in China’s eastern Zhe­jiang prov­ince. Shang­hai mar­kets fell 0.6 per cent yes­ter­day.

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