Bonds reign supreme, equities struggle on recession, Brexit fears

TOKYO (Reuters) – World bond yields flirted with document lows whereas shares struggled to get better on Thursday, as international recession worries from intensifying U.S.-China frictions and the specter of a no-deal Brexit drove traders to safer harbors.

Passersby are mirrored on a inventory citation board outdoors a brokerage in Tokyo, Japan, August 6, 2019. REUTERS/Issei Kato

MSCI’s broadest index of Asia-Pacific shares outdoors Japan fell 0.38%, Singapore shares hit eight-month lows, whereas Japan’s Nikkei shed 0.44%.

On Wall Avenue, the S&P 500 gained 0.65% on Wednesday due partly to features within the vitality sector following a rebound in oil costs. However U.S. inventory futures misplaced 0.4% in Asia.

Bond markets all over the world painted a gloomier image, with yields on 30-year U.S. Treasuries and 10-year German bunds yield each hitting document lows – 1.905 % and minus 0.716 % on Wednesday.

Inversion stays a distinguished function throughout the U.S. yield curve, the place long-dated yields are beneath short-dated ones, an unsettling signal as yield curve inversions have been a dependable main indicator of future U.S. recessions.

Italy’s 10-year bond yield briefly fell beneath 1% for the primary time ever. The frenzy to purchase Italian debt, which carries increased yields than the ‘core’ euro zone international locations, was partly prompted by rising hopes {that a} new authorities will quickly be shaped in Rome and a brand new election averted.

In Asia, the 10-year Japanese authorities bond yield dipped 1 foundation level to minus 0.285%, simply above its document low of minus 0.300% touched in 2016.

“Falls in international bond yields replicate rising issues that long-term international progress is slowing down on U.S.-China tensions and worries over subsequent international provide chain disruptions,” mentioned Tomoo Kinoshita, international market strategist at Invesco Asset Administration in Tokyo.

“Inventory markets alternatively are supported within the near-term by hopes of extra stimulus, notably from the Federal Reserve and the European Central Financial institution,” he mentioned.

The 2 main central banks are anticipated to chop charges subsequent month, whereas many traders imagine the Financial institution of Japan may be part of the fray if market sentiment weakens additional.

The Trump administration on Wednesday made official its additional 5% tariff on $300 billion in Chinese language imports and set assortment dates of Sept. 1 and Dec. 15.

Which means merchandise equivalent to smartwatches, Bluetooth headphones, flat panel televisions and lots of forms of footwear will likely be levied from subsequent month, elevating worries about U.S. consumption, one of many few remaining vibrant spots on this planet financial system.

The dear metallic markets highlighted traders’ quest to purchase safer belongings.

Gold rose 0.17% to $1,541.three per ounce, close to six-year highs of $1,556.1 set earlier within the week whereas silver prolonged its bull run and rose 0.85% to fetch $18.32 per ounce, edging close to its 2017 peak.

Sharp falls in bond yields, nonetheless, have some traders frightened that the current rally in bond costs might have gone too far.

The 30-year U.S. bond yield, now at 1.921%, has fallen 60 foundation factors thus far this month, to slide beneath dividend yield of U.S. shares, which stood at 2.04%.

S&P dividend yield vs 30-yr U.S. Treasury – right here

“Yields might have fallen to unjustifiable ranges even when one bets on a long-term stagnation within the international financial system. And after we had a significant bond correction in Europe 4 years in the past, the adjustment was fairly sharp,” mentioned Yoshinori Shigemi, international market strategist at JPMorgan Asset Administration in Tokyo.

Within the foreign money market, the yen gained 0.2% to 105.90 per greenback whereas the New Zealand greenback slipped 0.4% to four-year lows on grim home enterprise sentiment information.

The euro was regular at $1.1084.

The MSCI rising market foreign money index is at its lowest ranges since mid-November, having fallen 0.9% thus far this week and on target to mark its greatest month-to-month fall in additional than seven years pushed by worries a couple of international slowdown.

The British pound licked its wounds at $1.2200, having slumped 0.61% the day gone by as probably the most critical UK political disaster in a long time deepened after Prime Minister Boris Johnson determined to droop Britain’s parliament for greater than a month earlier than Brexit.

The transfer will restrict the time opponents must derail a disorderly Brexit but additionally will increase the possibility that Johnson may face a vote of no-confidence in his authorities, and probably an election.

“From an financial viewpoint, actively pursuing a no-deal Brexit by means of suspending parliament is tantamount to actively pursuing a recession,” mentioned Seema Shah, Chief Strategist, Principal World Buyers in London.

Considerations about Brexit are already taking a toll on Europe, with the current export stoop in Germany pushed primarily by weaker gross sales to Britain fairly than the broader commerce struggle.

Oil costs held agency after a achieve of practically 2% within the earlier session as a larger-than-expected decline in U.S. crude stockpiles helped ease worries about weakening oil demand.

In Asia Brent crude futures fell 0.1% to $60.43 a barrel whereas U.S. West Texas Intermediate (WTI) crude gained 0.18% to $55.88 per barrel.

Further reporting by Tomo Uetake; Modifying by Shri Navaratnam and Jacqueline Wong

Our Requirements:The Thomson Reuters Belief Rules.

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