Asia stocks slump as bond market signals recession

Asian retreat follows a sharp retreat on Wall Street amid rising fears of slowing global growth

“We shouldn’t ignore that this historically reliable indicator of the economy is telling us a recession may be looming,” said Kerry Craig, global market strategist for JP Morgan

“We shouldn’t ignore that this historically reliable indicator of the economy is telling us a recession may be looming,” said Kerry Craig, global market strategist for JP Morgan

 

Asian stock markets skidded on Thursday following a sharp retreat on Wall Street amid rising fears of slowing global growth as a closely-watched US financial metric pointed to an increased chance of recession.

Japan’s Topix was down 1.3 per cent, erasing gains for the year, while the S&P/ASX 200 in Australia fell 2.6 per cent. Hong Kong’s Hang Seng was 0.2 per cent lower.

Overnight, a risk-off tone saw investors shift into government bonds sending the yield on the 10-year US Treasury briefly below that of the two-year. So-called inversions of the yield curve event have previously indicated a recession is on the horizon. The yield on the 10-year US Treasury was down 3 basis points on Thursday during Asian trading hours at 1.5471 per cent, according to Refinitiv data.

“We shouldn’t ignore that this historically reliable indicator of the economy is telling us a recession may be looming,” said Kerry Craig, global market strategist for JP Morgan

“We shouldn’t ignore that this historically reliable indicator of the economy is telling us a recession may be looming,” said Kerry Craig, global market strategist for JP Morgan. “But markets have changed significantly in the last decade and yield curve inversion is not the harbinger it once was.”

The S&P 500 ended Wednesday down 2.9 per cent with falls across the board following disappointing data that showed the German economy shrank in the second quarter and weaker than expected Chinese industrial output growth.

With US-China trade tensions rumbling on, Donald Trump called on China to “work humanely on Hong Kong first”, in reference to the territory’s ongoing political turmoil, if Beijing wanted to make a deal in a series of tweets, suggesting a “personal meeting” with President Xi Jinping.

Oil continued its recent slump, with Brent - the international oil marker - receding 0.7 per cent to just over $59 a barrel. Gold, a haven asset, was up 0.3 per cent at $1,520 per troy ounce.

Better-than-expected Australian jobs figures pushed the Australian currency 0.5 per cent higher against the US dollar. - Copyright The Financial Times Limited 2019