AFP – Plunging bond yields jolted global markets Wednesday as interest rate cuts by three central banks and grim German economic data underscored worries about a weakening global economy amid the protracted US-China trade war.
Wall Street opened the day in sell-off mode, a familiar theme in August as the US and China have announced new measures targeting each other.
But after a bruising start, US stocks gradually pushed higher throughout the day while Treasury yields recovered from their lows. Two of the three major Wall Street indices finished in positive territory.
Decisions by more central banks to cut interest rates and weak German industrial data "reminded investors that economic growth in several other regions of the world remain at risk as the US and China trade dispute drags on," said CFRA strategist Lindsey Bell in a note.
"While uncertainty is driving upside in defensive asset classes, we don’t think stocks should be abandoned at this time. A near-term recession is unlikely."
Still, most banks were under pressure, with Italy’s UniCredit and Germany’s Comemrzbank both sharply lower following warnings on the hit from lower interest rates. Large US banks such as JPMorgan Chase and Wells Fargo also lost more than two percent.
Bond prices rise as more investors seek safe investments, and that pushes their yield or return lower. The benchmark US government 10-year note dropped to multi-year lows, while French and German bond yields, already in negative territory, set new record lows.
"Nobody wants to be vulnerable, everybody is in risk aversion mode, and all ingredients are in place to push yields lower," Aurelien Buffault, bond manager at Meeschaert, told AFP.
– ‘Rates falling everywhere’ –
Markets now believe that the world’s key central banks will cut interest rates further to stave off, or at least alleviate, any coming recession, analysts said.
"Rates falling everywhere," analysts at Moneycorp said.
"They may not exactly be competing but the world’s central banks all seem to be pointing in the same direction towards lower rates. In every case there is concern, to a greater or lesser degree, about the global economy."
Commodity markets also followed the logic of economic worry, with safe-haven investment gold surging and oil, the fuel of economic growth, falling.
Gold went above $1,500 per ounce for the first time since 2013.
Oil extended already steep weakness after the US Department of Energy reported a surprise increase in inventories — a sign of flagging demand.
European stocks had a rollercoaster session which started on an upbeat note but then turned sour when US stocks fell sharply at the New York opening bell as "escalated US-China trade concerns continuing to weigh on sentiment," Charles Schwab analysts said.
But as Wall Street came off its morning lows, European equities regained their poise to close mostly higher.
– Key figures around 2040 GMT –
New York – Dow: DOWN 0.1 percent at 26,007.07 (close)
New York – S&P 500: UP 0.1 percent at 2,883.98 (close)
New York – Nasdaq: UP 0.4 percent at 7,862.83 (close)
London – FTSE 100: UP 0.4 percent at 7,198.70 (close)
Frankfurt – DAX 30: UP 0.7 percent at 11,650.15 (close)
Paris – CAC 40: UP 0.6 percent at 5,266.51 (close)
EURO STOXX 50: UP 0.6 percent at 3,309.99 (close)
Tokyo – Nikkei 225: DOWN 0.3 percent at 20,516.56 (close)
Hong Kong – Hang Seng: UP 0.1 percent at 25,997.03 (close)
Shanghai – Composite: DOWN 0.3 percent at 2,768.68 (close)
Pound/dollar: DOWN at $1.2140 from $1.2171 at 2100 GMT
Euro/pound: UP at 92.26 pence from 92.01 pence
Euro/dollar: UP at $1.1203 from $1.1199
Dollar/yen: DOWN at 106.23 yen from 106.47 yen
Brent North Sea crude: DOWN 4.6 percent at $56.23 per barrel
West Texas Intermediate: DOWN 4.7 percent at $51.09 per barrel