Recession fears hit global markets as bond yields keep falling - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-03-25 20:16 (#4BRWD)

Rolling coverage of the latest economic and financial news, as markets are hit by anxiety over the global economy

8.15pm GMT

And finally.... Wall Street has closed, with the main indices virtually unchanged.

A day that began with a rout in Asia, and a 3% tumble on the Nikkei has ended with the Dow Jones industrial average up 0.07%, or 17 points.

US Closing Prices:#DOW 25516.83 +0.06%#SPX 2798.36 -0.08%#NDX 7316.95 -0.12%#VIX 16.45 -0.18%

The yield curve (3-month bills/T-note) has inverted. If it stays that way, on average, for a quarter, history suggests we see a #recession within 18 months. pic.twitter.com/FbDKTeWBSL

7.42pm GMT

IMF chief Christine Lagarde has weighed in on the side of campaigners calling for tech giants to pay more tax.

In a speech in Washington, Lagarde says:

"An impetus for rethinking international corporate taxation stems from the rise of highly profitable, technology driven, digital-heavy business models.

"The ease with which multinationals seem able to avoid tax, and the three-decade long decline in corporate tax rates, undermines faith in the fairness of the overall tax system. The current international corporate tax architecture is fundamentally out of date."

7.08pm GMT

What a difference a year makes in the bond market...

1 year ago...
US 10-year yield: 2.82%
US 1-month yield: 1.69%
Spread: 1.13%

Today...
US 10-year yield: 2.40%
US 1-month yield: 2.46%
Spread: -0.06% pic.twitter.com/AKESUcvn2f

7.05pm GMT

Here's our news story on the latest twist in the Sports Direct/Debenhams row.

6.54pm GMT

John Colley, professor of practice at Warwick Business School, explains why Sports Direct is now considering a bid for Debenhams:

"Mike Ashley is aware his 29.9% shareholding has virtually no value and that is unlikely to change.

"What he wants is control. That is why he is now considering a fresh bid for the remaining shares.

6.53pm GMT

The news that Sports Direct could bid for Debenhams comes just a few days after it offered 100m for its Danish stores.

Debenhams declined, despite being desperate for cash as it tries to restructure its business and lower its debt pile.

6.32pm GMT

A late UK newsflash: Sports Direct has announced it is considering making a cash bid for Debenhams, the troubled department store chain.

In a statement to the City, Sports Direct says the offer would be better than Debenham's current debt restructuring plan.

A post 6pm sports direct announcement special... sportswear retailer says it is considering a cash offer for Debenhams which it thinks would be better option than anything Debenhams is proposing... no figure mentioned... and says it is only one of the options it is considering..

6.26pm GMT

Wall Street is heading lower in late trading, with the Dow now down 90 points again.

Apple is the biggest faller, down 1.8% as it announces a new streaming service, games offering and credit card.

5.52pm GMT

On the other hand, at least US and UK government debt offer a rate of interest.

More and more sovereign bonds are trading with negative yields, meaning investors are guaranteed to not get all their money back:

This is probably your biggest market story this week.. The value of negative-yielding debt just topped $10 trillion (again) pic.twitter.com/iB2eLXRjFv

Japan 10Y yields collapse further into negative territory pic.twitter.com/UViHgcb3dS

5.47pm GMT

US government bond yields are also continuing to drop, providing more fuel for those concerned the yield curve is inverting [explainer here]

US 10-YEAR TREASURY YIELDS FALL TO 2.404 PCT, LOWEST SINCE DEC. 2017

The inversion of some segments of the U.S. Treasury #YieldCurve last week made a great deal of news, but we think the dynamic is due to market technicals and last week's confirmation of a dovish pivot from the #Fed. In other words, it likely doesn't signal imminent recession.

5.41pm GMT

Back in the bond market, the yield on UK government debt has hit its lowest level since autumn 2017.

Reuters has the details:

Brexit worries pushed Britain's 10-year government bond yield below 1 percent for the first time in 18 months on Monday as the country's still uncertain departure from the European Union added to concerns about global economic growth.

The 10-year gilt yield fell 3 basis points on the day to 0.981 percent, the lowest level since Sept. 8 2017.

5.36pm GMT

European stock markets have closed for the day, with their second straight session of losses.

The FTSE 100 has ended the day down 30 points, or 0.4% at 7,177, an eight day low.

4.07pm GMT

After a choppy morning's trading, the US stock market is back where it started. The Dow and the S&P 500 are both flat, although the Nasdaq is still lower (-0.2%).

Europe is still nursing losses, with the FTSE 100 down 40 points (-0.6%) in late trading.

3.54pm GMT

Fiona Cincotta, analyst at City Index says the inversion of the yield curve for US government debt has worried traders:

The yield of the 3-month treasury topping its 10-year counterpart is often considered a warning for a recession. The last time this happened was pre the financial crisis in 2007. With recession warnings sounding, traders are growing increasingly nervous.

There is a definite uneasiness surrounding the state of the global outlook, which investors just can't shake off. As a result, demand for risker assets has fallen sharply and we are seeing increased flows into safe havens, such as the Japanese yen and gold.

2.36pm GMT

Time for a quick recap.

Anxiety over the slowing global economy, and warning lights flashing in the US bond markets, are weighing on stock markets today.

The scariest chart of these days. US 10y yields in free fall. Plunges to 2.42%, lowest since 2017. pic.twitter.com/ljpEaw1kVR

For forecasters, inverting yield curves have about the same significance as voodoo cursed totems for followers of that religion. That's because they have preceded the last seven official U.S. recessions. They are therefore not to be taken lightly.

In #Germany, the #Markit manufacturing index and the #IFO manufacturing index have exactly the same profile. The negative shock from the rest of the world is hurting the manufacturing sector and the German economy. Those who think the IFO is better shaped are wrong pic.twitter.com/Pt9ettaj5D

2.12pm GMT

Anxiety over a global slowdown has pushed the US Dow Jones industrial average to a two-week low:

2.07pm GMT

Back in New York, the sell-off is gathering pace.

The Dow is now down 93 points, or 0.4%, at 25,409, adding to the 460-points lost on Friday.

1.55pm GMT

Back in London, the FTSE 250 index of mid-sized firms just hit a new six-week low, down 1.1% today.

Brexit anxiety can take the blame, along with worries about the global economy.

Spokesman: DUP Leader Advised UK PM May That Nothing Had Change In Their In Their Position On Divorce Deal $GBPUSD

DUP source tells me "nothing has changed". They still can't support PM's deal. So where does that leave MV3 tomorrow? Dead already?

1.37pm GMT

Ding ding! Wall Street has opened for a new week, and shares are dipping.

1.10pm GMT

Things may be bad now for Germany's factories, but a no-deal Brexit would make things much worse.

So argues Neil MacKinnon, Global Macro Strategist at VTB Capital:

"The fact that the German manufacturing sector is in trouble shows how the downturn in global trade is affecting a key exporting economy (the PMI index is at a 79-month low). The same applies in Japan, where the latest PMI index for the manufacturing sector highlighted that new export orders are decreasing at a faster rate.

A 'no-deal' Brexit shock would make things worse for German exporters, given the trade surplus with the UK in goods."

12.36pm GMT

Brexit just got real for hundreds of staff at JP Morgan.

The employees, who work in areas such as sales and risk, have been presented with contracts in the last week that demand they relocate to a European Union country such as Germany or France in a no-deal scenario, the people said, declining to be identified as the details are private.

The affected staff were warned months ago of the possibility, but with JPMorgan activating its Brexit contingency plans, they now must decide whether to move or risk losing their jobs, the people said. The bank plans to redeploy staff to other roles in order to avoid layoffs, one person said.

12.19pm GMT

Here's some more analyst reaction to the German confidence data:

German IFO was better than expected, and talking heads are talking about a potential rebound.
But manufacturing remains negative.
And it is manufacturing that matters the most for Germany. So I do not see this reading as really positive. pic.twitter.com/tPjaeJtsS3

Nordea Bank 1/3: The #Ifo index rebounded, questioning the very negative message given by the #PMIs last week. Ifo suggests that after a substantial fall, confidence could be stabilizing. Manufacturing confidence continued to fall, keeping risks firmly to the downside. pic.twitter.com/shTki8BRmK

12.05pm GMT

European stock markets are heading south again.... proving that it takes more than one decent blob of economic data to raise spirits.

"There's a pretty obvious weakness in growth and markets need to come to terms with that."

11.46am GMT

In other news, UK satellite operator Inmarsat has fallen to a takeover offer, ending a spirited battle to remain independent.

10.53am GMT

The pound continues to be jolted around by the latest Brexit developments.

Sterling is down almost half a cent at $1.317 this morning, as MPs prepare to vote on whether to "take control" of the process (and Theresa May faces her cabinet).

In a "no-deal" scenario, the UK will become a third country without any transitionary arrangements. All EU primary and secondary law will cease to apply to the UK from that moment onwards. There will be no transition period, as provided for in the Withdrawal Agreement. This will obviously cause significant disruption for citizens and businesses.

In such a scenario, the UK's relations with the EU would be governed by general international public law, including rules of the World Trade Organisation. The EU will be required to immediately apply its rules and tariffs at its borders with the UK. This includes checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms. Despite the considerable preparations of the Member States' customs authorities, these controls could cause significant delays at the border. UK entities would also cease to be eligible to receive EU grants and to participate in EU procurement procedures under current terms.

If you intend to travel between the UK and the EU in the event of 'no deal', #Prepare4Brexit on:
"aTMi Border checks, visa and customs checks, VAT refund
Passenger rights
Validity of tickets
Healthcare when travelling
Driving licences
Pets
Roaming pic.twitter.com/Bg2Ok62Ctl

10.44am GMT

European stock markets have recovered some of their earlier losses, thanks to the rise in German business confidence...

...however Ken Odeluga of City Index fears further losses ahead.

Europe stocks pull away from lows after #IFO biz sentiment upside surprise.
-10yr bund yield back above '0'
--Profit taking helps
--This is very probably just a breather before risk sell-off resumes ^KO pic.twitter.com/qsnXJL3mqJ

10.37am GMT

Here's IFO president Clemens Fuest's take on Germany's economy, based on its survey of German business leaders:

In manufacturing the business climate weakened once again. The manufacturers assessed their current business somewhat less positively. The outlook also worsened. The expectations component fell to its lowest value since November 2012. With declining demand, businesses hardly expect any more increases in production.

In the services the index rose noticeably, mainly as a result of clearly more optimistic expectations. The service providers gave more positive assessments to their already favorable business situation.

10.21am GMT

The IFO Institute predicts that Germany's economy will only grow by 0.6% this year.

That would be rather weak by historical standards, and follow on from a disappointing performance in 2018 -- no wonder investors are worried about the global economy!

All 36 OECD countries have reported GDP growth figures for Q4 2018. Central & Eastern Europe seeing the strongest growth with Latvia's 5.6%y/y out on top. All G7 barring the US were in the bottom third. Turkey the standout for all the wrong reasons with a -3.1%y/y fall. pic.twitter.com/DNsvHLowj2

10.14am GMT

The Brexit crisis is hurting German manufacturing, warns IFO economist Klaus Wohlrabe.

Wohlrabe says the uncertainty over Britain's departure helps explain why factory morale keeps falling, even as other sectors become cheerier.

"Brexit uncertainty is particularly hitting the industrial sector. The other sectors don't appear to be affected."

March #ifo more upbeat than Friday's gloomy #PMI signal and first increase since August 2018 is definitely goods news. Time will tell how durable it is, but #Germany's #manufacturing weakness is not over yet. pic.twitter.com/AIWTriasVm

10.03am GMT

It's not all good news, though.

The IFO Institute points out that German factory bosses are even gloomier than a month ago, reflecting worries over trade war and Brexit.

The rebound in the German Ifo index was welcome, but the further fall in manufacturing confidence keeps risks firmly tilted to the downside. #recession https://t.co/zg6yeAEDkH pic.twitter.com/tiULwcYClP

9.59am GMT

The unexpected jump in confidence among German companies is a "glimmer of hope" for the European economy, says Bloomberg, as it tries to fight an economic slowdown.

Ifo's closely-watched index rose to 99.6, beating forecasts for a reading of 98.5, and a gauge of executives' expectations also rose. The improvement helps to dispel some of the gloom after a survey on Friday showed German manufacturing in its deepest slump in more than six years.

The yield on German 10-year bonds briefly climbed back above zero after the report. The euro was up 0.2 percent at 10:21 a.m. Frankfurt time, trading at $1.1319.

9.54am GMT

Shares are recovering in Frankfurt, as investors welcome the pick-up in German business confidence:

German business morale rises in March...despite downside risk fears after weak PMI's Friday. IFO says the #German #economy is showing resilience. Dax turns positive, Euro rises and Bund yields trim some of their losses.

9.42am GMT

Carsten Brzeski of ING believes Germany's economy could be turning a corner, now that business morale is picking up.

Today's Ifo index ends a period of pessimism and suggests that not all is bad in the German economy. With some (technical) rebounds in industrial production in February and March, the first quarter for the German economy might not be as weak as some have expected.

In our view, the solid domestic fundamentals, low-interest rates and a weak euro, still argue in favour of a rebound, mainly on the back of investments, consumption and some relief from the global risk factors. At the same time, however, the risk of a self-enhancing negative sentiment loop is increasing by the month.

To paraphrase ECB president Mario Draghi's words - the German economy is somehow still caught in a dark room. A dark room, in which all of a sudden someone can easily switch on the light, and everything will be fine, or a dark room, in which the search for the exit door could still take a while.

Call him an eternal optimist if you may, but ING's @carstenbrzeski reckons today's Ifo index rebound ends a period of pessimism and suggests not all is bad in the German economyhttps://t.co/21t6s8OzXv

9.36am GMT

Despite March's recovery, German business confidence is still quite low - as this tweet from economist Ulrik Harald Bie shows.

German Ifo regained some ground in March with improved expectations pushing up overall confidence. Note that manufacturing saw a further decline with business expectations down to level last seen during the euro crisis. Construction and servives pulled up composite #macrobond pic.twitter.com/NLVXE7FBTG

9.25am GMT

Good news alert! German business morale has risen, offering some hope that the eurozone economy may be healing.

The IFO Institute has reported that German business leaders are more confident about future prospects, and also say that current business conditions have improved.

"The German economy is showing resilience."

9.12am GMT

Wall Street is expected to join the selloff when trading begins in four and a half hours.

Dow Jones futures are down 0.3%, while the Nasdaq is being called down 0.6%.

9.00am GMT

Also...it's not like the bond market has some hidden super-powers....

Yield curve obsession is cargo cult thinking. Conditions that tend to invert the curve also tend to induce recesssions; that's all. If you pay attention to the prevailing conditions, u don't have to suddenly wake up when the yield curve inverts like some apocalyptic sleeper agent

8.57am GMT

Gold is benefitting from the dash out of risky assets today.

8.56am GMT

There's a problem with using the US yield curve as an economic indicator -- QE.

The massive bond-buying programmes run by central banks since the financial crisis have moved bond prices, making it harder to say whether the price of a particular security accurately reflects economic and financial fundamentals.

Inverted yield curve: 10-year US Treasury yield fell below the three-month rate for the first time since 2007 via @FT
Normally an indicator of recession - but bond markets are affected by QE pic.twitter.com/ipF1gtyNHj

8.30am GMT

A sea of red ink is seeping across Europe's main stock markets.

It's not a major sell-off at this stage, but Germany's DAX has hit its lowest level in almost 6 weeks.

8.19am GMT

European stock markets have also joined the selloff.

The Stoxx 600, which tracks the biggest companies across Europe, has shed 0.6% in early trading.

Investors should be prepared for a tough week as we close out March and the first quarter. Global stocks have taken a battering in the last couple of sessions as bond yields have sunk across the board. The slide in yields last week was a red flag for equities; the bond market loudly proclaiming that it's not confident about the growth outlook.

The bond market has been trying to speak for a while now but it's been shouted down by the equity market rally - until now. Although allocations were suggestive of a lack of animal spirits driving the rally as investors were long low growth/low inflation plays, and short inflation/growth.

8.13am GMT

Britain's FTSE 100 has dropped 41 points at the start of trading to 7167. That's a 0.5% decline, following Friday's 2% tumble.

Most shares are down, with technology stocks, miners and industrial groups leading the selloff.

8.09am GMT

Charles Evans, president of the Chicago Federal Reserve, has downplayed the dangers of a recession.

Speaking at a conference in Hong Kong, Evans argued that America's economy is in good shape:

"I look at the nature of the U.S economy, I look at the labor market, it's strong, the consumer continues to be strong."

"Some of this is structural, having to do with lower trend growth, lower real interest rates.

I think, in that environment, it's probably more natural that yield curves are somewhat flatter than they have been historically."

8.05am GMT

On Friday, after Fed turned decidely dovish, the US 3m-10y yield curve spread inverted (an indicator of impending recession in 18 months) for the 1st time since 2007. Benchmark German govt bond yield turned negative. Img: Yield Inversion indicating a recession. Source: Bloomberg. pic.twitter.com/v1o5hrA91I

8.02am GMT

Jasper Lawler of CMC Markets says America's central bank, the Federal Reserve, has spooked investors with some unexpectedly cautious forecasts last week:

Concerns over the health of the US economy sent Wall Street sharply lower on Friday, with all three main US indices recording the worst session since January 3rd. After the Fed doubled down on dovish rhetoric, US treasury yields inverted for the first time since 2007 on Friday.

An inverted yield curve, the 10-year yields falling below the 3-month yield, has in the past signalled a recession. The last inversion was in 2007. With the recession warning bell blaring, investors will struggle to justify buying into riskier assets right now.

8.01am GMT

Jim Reid of Deutsche Bank says the risks of a US recession next year are rising, following the collapse in bond yields in recent days.

We don't care why the curve inverts but instead think that in a capitalist economy like the US, animal spirits - and with it economic growth - are very linked to the steepness of the curve.

Before last week, our view was that the curve may invert in the second half of 2019 and elevate the risks of a recession in the second half of 2020. However, the move over the last few days increases the risks of both arising earlier even if we haven't yet changed our view.

7.52am GMT

Recession fears are driving investors into safe-haven government bonds, and out of shares (which are usually seen as riskier).

This is sending bond prices soaring, pushing down the interest rate (or yield) on the debt.

Adding to the fears of a more widespread global downturn, manufacturing output data from Germany on Friday showed a contraction for the third straight month.

In response, US 10-year treasury yields slipped below the three-month rate for the first time since 2007 as nervous investors ploughed their money into the safe haven of bonds rather than riskier assets such as shares.

Aussie yields collapsing - 10 year bond opened below 1.8% for the first time on record, hit record low 1.762%

Australian 2-5 Years Yield curve inverted by 1bp pic.twitter.com/ZNCnN77bXW

7.42am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Overnight, stocks in Asia sold-off heavily as concerns for the health of the global economy weighed on sentiment. Heavy losses were sustained in Japan and China.

All the Brexit chatter has been about the state of the UK economy, but mainland Europe is limping along, and the bloc is looking very weak. Brussels is holding firm, but the eurozone is struggling and France and Germany would be badly impacted by a no-deal Brexit.

#US 3m10y yield curve inverts for first time since May 2007. There have been false signals before. But if the yield curve remains negative and by more, historically this has been a fairly good predictor of a US recession over the coming year. pic.twitter.com/F3z9OmJROn

European Opening Calls:#FTSE 7176 -0.43%#DAX 11285 -0.69%#CAC 5244 -0.49%#MIB 20936 -0.68%#IBEX 9133 -0.72%

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