By David Randall
NEW YORK, May 29 (Reuters) - Fears that an escalating trade
war between the U.S. and China will slash global economic growth
pulled world stock markets down to near two-and-a-half-month
lows on Wednesday and continued to feed a rally in safe-haven
government bonds.
German bond yields fell deeper into negative territory and
inched towards record lows around minus 0.2%. Ten-year U.S.
Treasury bond yields reached 20-month lows, having fallen almost
30 basis points this month.
Chinese newspapers warned on Wednesday that Beijing could
use rare earths to strike back at the United States after U.S.
President Donald Trump remarked he was “not yet ready” to make a
deal with China over trade.
The prospect of a prolonged standoff between the world's two
biggest economies and the likelihood of Europe and Japan getting
dragged in have made investors concerned about global growth.
With economic data showing that U.S. manufacturing growth
dropped to 10-year lows, another round of tariffs would sharply
raise the risk of a recession in the U.S., said Justin
Onuekwusi, a fund manager at Legal & General Investment
Management.
“The market is simply calculating what the impact will be of
the next set of tariffs as it doesn't look like the rhetoric is
calming down,” Onuekwusi said.
“Then we have a weaker growth outlook ... so we have the
negative shock of trade added to lower growth and the cushion of
protection isn't as good as it was eight to nine months ago.”
Those concerns dragged MSCI's global equity index
.MIWD00000PUS down 0.4% to a 2 1/2-month low following losses
across Asia.
On Wall Street, the Dow Jones Industrial Average .DJI fell
197.46 points, or 0.78%, to 25,150.31, the S&P 500 .SPX lost
17.9 points, or 0.64%, to 2,784.49 and the Nasdaq Composite
.IXIC dropped 55.50 points, or 0.73%, to 7,551.85.
The pan-European STOXX 600 index .STOXX lost 1.37%.
Concerns over the fate of Britain's exit from the European
Union also helped drive U.S. 10-year yields about 10 basis
points below the 3-month rates, an inversion typically seen as a
leading indicator of a recession. The inversion is the deepest
in almost 12 years.
“What I see as more consistent is that typically when the
yield curve inverts you get central bank easings. So the
question about recession would be: would the U.S. Fed ease
enough to avoid a recession?” said Chris Rands, Sydney-based
fixed income portfolio manager at Nikko Asset Management.
Data this week showed a gauge of U.S. manufacturing activity
unexpectedly fell in May from the previous month. That follows
earlier disappointing readings on U.S. manufacturing and
industrial output, Rands added.
“The fact that you have got a bit more noise around the
trade war now at the same time as manufacturing is rolling over
— it's getting people to think that things are a little bit
worse than they had expected,” he said.
Currency activity was muted, with the dollar index .DXY ,
tracking the U.S. unit against six major currencies, up at
97.905. The dollar is on track for a fourth month of gains,
benefiting from flows away from markets such as Asia that are
considered at greater risk from trade wars.
The euro was unchanged at $1.1159 after falling two straight
days. The British pound held at $1.2656.
Commodity markets were also dominated by fears of a global
economic downturn. Brent crude was off more than 1% at $69.15
per barrel. Gold benefited from the safe-haven bid, rising half
a percent to $1.285 an ounce.
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Global assets in 2019 http://tmsnrt.rs/2jvdmXl
Global currencies vs. dollar http://tmsnrt.rs/2egbfVh
Global bonds dashboard (DO NOT USE UNTIL UPDATE FOUND) http://tmsnrt.rs/2fPTds0
Emerging markets in 2019 http://tmsnrt.rs/2ihRugV
MSCI All Country Wolrd Index Market Cap http://tmsnrt.rs/2EmTD6j
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