GLOBAL MARKETS-Global stocks routed, oil sinks as bond markets flash recession warning

* 2-yr, 10-yr Treasury yields invert for first time in 12
years
* Dow closes down 800 points, worst day of 2019
* Oil extends big overnight losses on recession fears,
inventories
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Tomo Uetake
TOKYO, Aug 15 (Reuters) - Global stocks crumbled and oil
prices extended a punishing sell-off on Thursday as an inverted
U.S. bond yield curve intensified fears about a world recession.
Markets in Asia were already on the backfoot after all three
major U.S. stock indexes closed down about 3% overnight, with
the blue-chip Dow .DJI posting its biggest one-day point drop
since October. .N
The tumult in stocks was triggered by an overnight intraday
fall in yields of 10-year U.S. Treasury notes US10YT=RR below
the two-year yield US2YT=RR , the first such drop since 2007,
in what is known as a yield curve inversion and widely seen as a
sign of a looming recession.
Global growth woes have mounted in recent months, especially
as a bruising trade war between the United States and China
showed signs of dragging on in a blow to businesses and
consumers.
The debilitating effects of the Sino-U.S. trade war on
growth was on full display this week as Germany's economy
contracted in the second quarter and a raft of Chinese economic
data pointed to deepening gloom in the Asian powerhouse.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS dropped 0.9% in early trade, while Japan's
Nikkei average .N225 tumbled 1.4% and Australian stocks
.AXJO sank 2.1%.
Chinese markets were also hit, with the benchmark Shanghai
Composite .SSEC and the blue-chip CSI300 .CSI300 down 1.1%
and 1.0%, respectively, while Hong Kong's Hang Seng .HSI lost
0.8%.
"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%," said Chris Rupkey,
chief financial economist at MUFG Union Bank.
In early Asian trade, 10-year U.S. Treasury yields dipped to
their lowest in 3 years, while the 30-year yields US30YT=RR
fell to as low as 1.991%, below the 2% floor for the Federal
Reserve policy rate for the first time ever. A dip
below 2% took the entire curve up to 30 years below official
interest rates.
The U.S. stock futures ESc1 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.
Still, oil prices fell on Thursday to extend steep overnight
losses as U.S. crude inventories unexpectedly rose, fears of
recession mounted and economic data out of China and Europe
disappointed. O/R . Yet gold prices remained stable on Thursday
after rising on safe-haven buying in the previous trading
session.
Brent crude LCOc1 was down 0.8%, at $59.03 a barrel, after
falling 3% in the last session, while U.S. crude CLc1 fell
0.5% to $54.96 a barrel, having dropped 3.3% in the previous
session.
As bond markets flashed concern about recession on Wednesday
and major stock indices cratered, U.S. President Donald Trump
put the blame squarely on the Fed for continuing to raise rates
through the end of last year. "China is not our problem, though Hong Kong is not helping.
Our problem is with the Fed. Raised too much & too fast. Now too
slow to cut...," Trump tweeted on late Wednesday. (https://twitter.com/realDonaldTrump/status/1161719408202584064)
Senior U.S. officials said on Wednesday China has made no
trade concessions after Trump postponed the 10% tariffs on over
$150 billion worth of Chinese imports, the latest sign that
efforts to reach a trade deal were going nowhere. Major currencies were relatively calm, with the dollar index
.DXY easing 0.1% to 97.936 and the euro EUR= adding a
marginal 0.1% to $1.1144. The Japanese yen was steady versus the
greenback at 105.93 per dollar, having firmed 0.8% 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 U.S. curves inverted
only temporarily, not on a closing basis," said Masahiro
Ichikawa, senior strategist at Sumitomo Mitsui DS Asset
Management.
Gold rose over 1% on Wednesday as an inverted U.S. Treasury
yield curve and weak euro zone data drove investors toward
safe-haven bullion. GOL
Spot gold XAU= stood at $1,518.55 per ounce early
Thursday, flat on the day and not far from its six year high
marked Tuesday.

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U.S. yield curve inversion Aug. 14 2019 Image https://tmsnrt.rs/2YQ1VhR
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