Dow tumbles 800 points as US and UK yield curves invert – as it happened

Graeme Wearden

from on 2019-08-14 21:40 (#4N8BV)

Investors are alarmed to see longer-dated UK and US bonds trading at lower interest rates than shorter alternatives, a possible sign of recession

THIS LIVE BLOG HAS CLOSED: Follow the latest business live blog here
Wall Street closes deep in the red
European stock markets hit six-month low
NEWSFLASH: US yield curve inverts in 'flashing light' warning
UK yield curve has also inverted - a worrying sign
Analyst: Why yield curve inversion could herald recession

Earlier:

10.40pm BST

That's all for today, as New York traders head home after a grueling day dominated by anxiety over the health of America's economy. Goodnight!

10.29pm BST

The S&P 500 index, which covers a wider range of companies than the Dow, also shed 2.9% today.

Retail chain Macy's was the worst performer, slumping by over 13% after posting dire earnings figures today.

10.14pm BST

Our economics editor Larry Elliott argues that the slump in bond yields is vindication for Trump in his battle with the Federal Reserve.

He writes:

The Fed is highly sensitive to what is happening on Wall Street and a rate cut at its next meeting in September is a nailed-on certainty. Some analysts, Steen Jakobsen at Saxo Bank, for instance, think that the US central bank may not wait that long and instead announce an emergency cut before its scheduled meeting.

That still seems a bit of a long shot but the accumulation of bad economic news means that the battle between the Fed and the White House has been won decisively by Trump. All that remains is to see how much face the Fed's chairman, Jerome Powell, can save.

9.37pm BST

Donald Trump is leaving no doubt about who he blames for the sell off:

We are winning, big time, against China. Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down. 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....

..Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!

9.22pm BST

Today's sell off is one of the biggest points falls on the Dow ever:

Dow closes down 800 points, 4th largest point decline in history. $DJIA pic.twitter.com/939nhyE834

In percentage terms, today's decline in the Dow (-3.05%) was the 342nd largest in history. To break the top 20 you need a drop of over 7%. $DJIA pic.twitter.com/gmfg5h2qi4

9.09pm BST

Ouch! The Dow has just closed, deeper in the red than ever.

The benchmark index shed 3%, or exactly 800 points, to end the day at 25,479.

8.25pm BST

Here's our news story on today's market gyrations:

7.55pm BST

Update: Wall Street is refusing to shake off its gloom, and is actually hitting new lows.

With barely an hour's trading to go, the Dow is down an alarming 763 points, or 2.9%, at 25,515 points.

7.52pm BST

Are you sitting comfortably? Then here's a short story about the problem

Recessions and the yield curve; all you'll ever need to know. I post this parable every year or so, so it would be remiss not to roll it out today of all days. pic.twitter.com/2PCDrblltd

7.09pm BST

Time for a recap

6.35pm BST

Newsflash: President Donald Trump has launched another salvo at Federal Reserve chair Jerome Powell.

Trump is unhappy with the way Powell presented last month's interest rate cut, and (as usual) is pushing the Fed for more aggressive cuts.

The Great Charles Payne @cvpayne correctly stated that Fed Chair Jay Powell made TWO enormous mistakes. 1. When he said "mid cycle adjustment." 2. We're data dependent. "He did not do the right thing." I agree (to put it mildly!). @Varneyco

Tremendous amounts of money pouring into the United States. People want safety!

6.29pm BST

Attention traders!

Former Federal Reserve Chairman Janet Yellen believes the markets may be wrong in assuming that the inverted US yield curve is signalling a recession.

Historically, it has been a pretty good signal of recession, and it think that's when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal.

The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields."

I think the U.S. economy has enough strength to avoid that, but the odds have clearly risen and their higher than I'm frankly comfortable with."

6.13pm BST

Ouch! The Dow Jones industrial average has now lost more than 700 points, as Wall Street traders continue hammering their sell buttons.

The inversion of the US 2 year yield and the US 10 year yield has sent shockwaves through the markets, and that has forewarned recessions in the US, and traders are running scared.

The major indices sold-off sharply for fear the US is heading for a recession. The underlying fundamentals are solid as the jobless rate is at multi-decade lows, and average earnings are outstripping inflation, but for now dealers are focusing on the yield curve, and equities are taking a hammering.

6.02pm BST

Economics expert Duncan Weldon has written a interesting thread about today's bond market developments.

He argues that the slump in bond yields shows anxiety about growth prospects, but not necessarily a recession.

Will there be a UK/US recession now the yield curve has inverted?
A mini-thread.

First, an explainer.
What's a yield curve inversion?
Well, it's when the cost of government borrowing is lower for longer term borrowing than shorter term borrowing.
I.e. when the yield on 2 Year government bonds is higher than on 10 year bonds.

That *shouldn't* happen often. Lending for longer should have a higher risk premium attached. A longer term loan is riskier. And *should* attract a higher yield.

But, "risk free" (let's be honest - neither the UK nor the US likely to default!) rates aren't really about credit risk. They are about market expectations of future central bank policy rates.

So UK & US government 2 year borrowing costs being below 10 year borrowing costs is seen as a recession indicator. It suggests that central banks will be cutting rates soon, and CBs do that when the economy turns down.

Historically, US yield curve inversions (2 year government debt attracting a higher yield than 10 year) have *always* been followed by recession.

But, and the but is important here, they've usually been associated with rising short term interest rates not falling long term ones.

And, in countries like Japan - which has experienced lownlong term rates for years, the curve has often inverted without a recession following.

And let's be honest... thinking a yield curve inversion means a recession is odds on... puts a lot of faith in the predictive power of the bond market.

I think a better read of the current pricing is that investors in UK and US longer term bonds think that longer term growth prospects are weak. Not that a recession is imminent.

5.40pm BST

Bloomberg's Michael McDonough makes a good point - who will get the blame if America slides into recession?

Many economists would point to the US-China trade war, which has disrupted the global economy and contributed to the slowdown.

Recession Probability Measures: (If in the end there is a recession, triggered by an escalating trade war, will it be known as the "Trump recession" or will blame somehow be placed on the Fed? I imagine this would matter a lot ahead of 2020) pic.twitter.com/tw2VbLKX0S

The only way to 'move' the market now in my opinion being moving [rates] between scheduled meetings.

They need to produce faster or more. Both are likely, but by faster would be my choice! Rip off the band aid.

5.18pm BST

Here's a video clip of White House trade adviser Peter Navarro predicting hefty cuts to US interest rates this autumn:

#NEW

Peter Navarro says interest rates most likely to be cut 50 bases points in September and 25 in December [toatl of 75 and maybe in reverse order]

Also, @realDonaldTrump to remove certain tariffs for the holiday season. pic.twitter.com/eZ6gZmxB4C

5.15pm BST

Wall Street is showing a distinct reluctance to bounce.

Stocks are ploughing new lows, with the Dow now down 660 points or 2.5%.

Dow tumbles more than 660 points or 2.5% to fresh session low; Nasdaq falls nearly 3% https://t.co/JdC6tKkvoU pic.twitter.com/JXXUSYvvH5

5.07pm BST

Today investors have scrambled desperately into safe-haven assets, such as government bonds and gold, and out of the risky stuff including oil and shares.

That's driven bond yields to record lows (Germany's benchmark 10-year bund fell deeper into negative yield territory), and pushed stock markets to their weakest point in several months.

It's all doom and gloom in the bond markets as investors flee into safe-haven assets. pic.twitter.com/bHp8Xp3u1a

4.50pm BST

European stock markets have hit their lowest level in six months:

European equities smoked today:

European Closing Prices:#FTSE 7147.88 -1.42%#DAX 11492.66 -2.19%#CAC 5251.3 -2.08%#MIB 20020.28 -2.53%#IBEX 8522.7 -1.98%

4.49pm BST

Newsflash: Britain's FTSE 100 stock index has just closed, down 103 points at 7,147.

That's its lowest closing level since March this year, and means the index has lost over 400 points since the start of August.

4.18pm BST

In the City, the FTSE 100 is being dragged lower and lower too.

The index of top London-listed shares has now lost 134 points, or 1.85%, falling to 7,116 points. That's its lowest in over two months.

Doom and gloom dominated after data showed that Chinese industrial output grew at the slowest pace in 17 years, whilst the German economy contracted.

Recession warning bells rang out across the markets as Trump's delaying of tariffs on some Chinese imports is a case of too little too latte - the damage to economies has already been done.

4.15pm BST

Ouch! The Dow has now slumped deeper into the red, down 2.25% or 591 points at 25,688.

Major US indices are hitting new daily lows as the 10yr-2yr yield curve inversion has investors spooked: #DJIA -591, #SPX -65

4.12pm BST

Here's a reminder that inverted yield curves don't IMMEDIATELY lead to recessions; it can take a year or more.

Some historical context for inversions and recessions https://t.co/bnju2XDr98 pic.twitter.com/vX66R9zPRz

4.07pm BST

Investors have been snapping up long-term US government debt today, sending the yield (interest rate) on 30-year Treasury bills to record lows (meaning prices are at record highs).

As Treasury yields continue to move lower, the 30-Year Treasury yield declined to a record low today. #treasuryyield #recordlow #flighttosafety pic.twitter.com/eWgAuYpNI5

3.57pm BST

A US recession may be approaching, but it might not actually arrive for a couple of years.

So argues Seema Shah, chief strategist at Principal Global Investors, who predicts the downturn could be delayed until 2021, if central bankers take action.

"The US economy is clearly weakening and risks are piling up. Capex will inevitably slow further, but under the assumption that the trade war doesn't escalate further, it will not weaken so much as to tip the US into recession. The Fed pivot in early 2019, global central bank easing, China stimulus and the reversal of its deleveraging process will support the global economy. Certainly our own recession risk model suggests that while the probability of a US recession has increased, it still isn't our central scenario.

"Notably the historical success of the yield curve as a recessionary signal is too strong to dismiss. However, the lead time of its signalling can be several years, so it is our best bet that while recession is unlikely in 2020, the following year may be a fairer bet as concerns about leverage in the corporate debt maker start to come to the fore. Even so, there are certainly enough risks globally to prompt investors to take reasonable defensive positioning in their portfolios right now.

3.51pm BST

Mohamed A. El-Erian, chief economic adviser at Allianz, says this morning's weak German GDP report has helped to drive bond yields down today.

He also cites poor Chinese industrial data released overnight, showing the smallest rise in factory output since 2002 -- another sign of economic slowdown.

Again this morning, lots of talk in #markets about government #bond yields as
2-10 curves invert in the UK and US (chart);
New record low for the US long bond;
The 10-year US yield falls to 1.60% and Germany to minus 0.64%; and
The stock of negative-yielding bonds reaches $16 tr. pic.twitter.com/eRuilPtja7

These yield moves reflect in part yet another set of weak economic data out of #China and #Germany.
The dynamism of #IndustrialProduction in China is the most muted for 17 years;
#Retailsales there also disappointed; and
The German #economy contracted in the last quarter. pic.twitter.com/abW4WO2jCP

3.43pm BST

Most of the big names on the Dow Jones industrial average are also in the red, haunted by recession worries.

Pharmaceutical firm WalGreens Boots Alliance is the top faller, down 3.2%, followed by chemicals firm Dow Inc (-3%), financial giant Goldman Sachs (-2.8%) and entertainment group Walt Disney (-2.75%).

3.30pm BST

Technology stocks are being hit hard now, sending the Nasdaq index down by 2%, or 150 points at 7,577.

Virtually every stock on the Nasdaq is in the red, with chipmakers AMD (-4.5%) and Micron (-3.3%) among the fallers.

2.59pm BST

Newsflash: Donald Trump's trade adviser has said the slump in US bond yields proves that American interest rates should be cut.

Peter Navarro also told Fox News that the "biggest problem" which America is currently fighting is the Federal Reserve's interest rate policy.

WHITE HOUSE ADVISER NAVARRO SAYS FALLING BOND YIELDS IS ANOTHER SIGN THAT U.S. FED SHOULD CUT INTEREST RATES

A fighter and champion, GREAT! https://t.co/8LoTrb6Pdc

2.44pm BST

Newsflash: Stocks are sliding at the start of trading in New York, as investors fear that an American recession could be looming

In early trading....

2.37pm BST

Back in April, the Financial Times wrote a handy feature on the inverted yield curve (full marks for prescience!).

It's online here, explaining how some experts don't think it's terribly reliable as a recession indicator today, while others think it could cause a recession.

The yield curve is Wall Street's original 'fear gauge', notching up a perfect predictive record before pretenders such as the Vix index were even glimmers in the eyes of financial engineers.

Typically, countries pay less to borrow for three months than five years, and less for five years than for a decade - after all, investors want some compensation for the gradual erosion of inflation, or the risk, albeit faint, that a government could renege on its debt.

With both the US and UK 2-10 yield curves inverting today for the first time since 2008, here is our big read on the phenomenon - and why it is so unnerving. https://t.co/qf15YES7Ub pic.twitter.com/rbg2C6CEfP

2.14pm BST

It's worth remembering that an inverted yield curve doesn't signal an immediate US recession - the downturn could be a year away.

That would coincide with the next presidential election, potentially undermining Donald Trump's re-election bid.

Assuming yield curve inversion is calling a recession in 12-18 months - that would put it slap bang in time for the 2020 US election

-- can see why Trump keen on rate cuts

2.08pm BST

The futures market is signalling a rough day on Wall Street, with the US benchmark stock indices called down at least 1.3%

2.02pm BST

Economics professor Paul Krugman argues that the slump in government bond yields contains an important message -- politicians can, and should, borrow more to fund investment.

As I wrote in yesterday's newsletter (to which you should subscribe!), amateurs talk about stocks, but professionals study bond markets. As of this morning the bond market is basically begging governments to borrow: the US 10-year real rate just 0.02 percent 1/ pic.twitter.com/e44SX8Rvu7

These low, low rates are telling us several things: (a) private investment demand is really weak despite tax cuts (b) recession risks are pretty high (c) infrastructure! I mean, with borrowing virtually free, why not fix all those falling-down bridges? 2/

But not going to happen. One of my better takes early on was that the Trump infrastructure thing was never going to happen; sure enough, "infrastructure week" became a punchline, and now isn't even that 3/ https://t.co/alnlqhyMBf

1.59pm BST

Despite today's market turmoil, the office rental chain WeWork has just announced plans to float on the US stock market.

WeWork is a workplace start-up, which rents out co-working spaces to startups, freelancers and enterprises. At one stage it even offered free beer... which might help explain why it's not made a profit yet, losing $2bn in 2018.

Bond market yields invert in US and UK; loss-making WeWork files for IPO. People, this is feeling toppy

1.36pm BST

Newsflash: Britain's FTSE 100 index of top blue-chip companies has hit its lowest level since early June.

The Footsie has shed 102 points to 7,148, its lowest level since 4 June.

1.26pm BST

Yuk:

1.17pm BST

The oil price is sliding - another sign that traders are bracing for a slowdown.

Brent crude (oil sourced from the North Sea) has dropped by 2.8% to $59.59 per barrel.

1.09pm BST

Here's Newsnight's Ben Chu:

Here's that 'inverted' UK government debt curve - 10 year gilt yield below 2 year gilt yield for first time since before the last recession... pic.twitter.com/lleDTV6Z2L

....does this signal from the bond market presage another recession?

Strong correlation when the equivalent happens in the US government debt market.

But less clear in UK, where past inversions haven't always been followed by recession: pic.twitter.com/1LAydx3KK6

1.08pm BST

The selloff is gathering pace.

In London, the FTSE 100 is now down 93 points or 1.28% at 7,158, close to a two-month low.

1.02pm BST

The US and UK yield curve inversion is part of a wider surge of money into government debt.

This has been going on for months, pushing bond prices to new highs (and driving yields to new lows, as they move inversely to prices).

While certain drivers of growth in the global economy (such as the buoyancy of the US consumer) have been robust, weak economic data overall has given investment markets cause for concern.

Growing unease has led to a flight to safe haven assets like government bonds, as continued fears around global growth push wary investors to preserve as much capital as possible at all costs.

12.50pm BST

Bloomberg have written a handy explanation of what an inverted yield curve is, and why it matters - it's online here.

It explains that:

12.35pm BST

In America, traders are waking up to the news that the US yield curve has inverted.

Wall Street is predicted to fall by around 1% when trading begins in two hours, as investors ponder whether the bond market is signalling a recession.

The shackles are off... #US yield curve inversion getting deeper. Stocks are tumbling, #SPX futures down by more than 1%. pic.twitter.com/KIIlg8fVDP

12.32pm BST

Ouch! Deutsche Bank's economics team have predicted that Germany will fall into recession this autumn.

They predict that GDP will contract in the current quarter, meeting the classic definition that a recession is two consecutive quarters of negative growth.

12.10pm BST

Rupert Thompson, head of research at the wealth manager Kingswood, believes that the European Central Bank will be forced to act to fight a German recession.

He writes:

German GDP fell 0.1% q/q in Q2. While this contraction followed a 0.4% gain in Q1, the underlying picture is that Germany is perilously close to falling into recession.

Indeed, German investor economic confidence nose-dived in August, suggesting there will be no early reprieve. German manufacturing has been hit hard by the US-China trade war and the woes of the auto sector is the main area of weakness. GDP in the Eurozone overall, by contrast, fared rather better in Q2 with a 0.2% gain. Even so, with the risks to growth skewed to the downside, the ECB still looks all but certain to cut rates next month and a re-start of its quantitative easing programme is also quite possible.

12.09pm BST

This chart shows how the difference between longer-dated and shorter-dated US and UK government bond yields have fallen steadily in recent months -- leading to today's worrying inversion.

11.57am BST

The BBC's Faisal Islam fears that the bond yield gyrations show the global economy is in trouble - just as the Brexit crisis intensifies.

Gilt curve inverted Klaxon... first time since the financial crisis --

In English, UK Government can currently borrow from markets more cheaply over a decade than it can over 3 months or two years... Rare - normally signals market expectation of weak growth/ recession.

Last occurred in UK in mid 2008 (pre Lehman) and then for most of 2007 (ahead of start of crisis)

Also seen in US today for first time since 07...if these signals are right, a storm is brewing in global economy, just at the very time UK political crisis resumes: (via @business ) pic.twitter.com/7vkPnbMzOP

Not quite at German levels yet, which as I was explaining on Today last week means the German government is being paid by international markets to borrow money from them - even over many years.

11.38am BST

European stock markets are heading further south, worried by the drama in the bond market.

Germany's DAX is now down 1.6%, while the UK's FTSE 100 is down 0.9%. Italy's FTSE MIB (also hit by political instability in Rome) has lost almost 2%.

11.36am BST

The UK yield curve has also inverted in the last few minutes, according to Reuters.

That's the first time since the financial crisis that Britain's two-year government debt has traded at a higher yield than the 10-year option.

Yield curve has inverted in UK and US in the region markets usually watch, 10 year minus 2 year govt bond yields. Three things:
1. Terrible record of false warnings in the UK: yield curve forecast recession constantly from 1997-2001, recession finally arrived in 2008. 1/3

2. Yield curve has been a good warning sign of recession in US, but best track record from 10 year minus 3 month. https://t.co/sYcRlcF3at
2/3

Oh and a bonus point is that (in US) period between yield curve inversion and recession can be very long: eg ~2 years before the last US recession for 10y-3mo, hard to hold a bearish position for that long in face of rising equity market.
4/3

11.25am BST

The inversion of the US yield curve is a 'massive red warning light' for the US economy, says Neil Wilson of Markets.com.

He points out that this is often (but not always) a harbinger of recession:

It's the first time it's happened since 2007. Meanwhile the 30-year has slumped to a record low. The market is saying the risks are tilted very much to the downside. We are in a new phase of the cycle for markets now.

To recap well-worn turf, this inversion been a reliable indicator of recession many times in the past, calling seven out of the last nine. There is undoubtedly a chance of this, although we must caution that so far the US data has been pretty sturdy in the face of global headwinds and the trade policies of the White House.

This yield curve inversion is a sell signal for risk assets and should put extra pressure on equities. Futures in the US had been tracking Europe lower and are extending their declines. Yesterday's bounce is proving short-lived.

Gold pushed up higher on the news, spiking through $1506, as it cemented its recovery after yesterday's selloff.

11.22am BST

Newsflash: The US yield curve has inverted, intensifying fears that America's economy could be falling into recession.

For non-bond experts... that means that the interest rate on 10-year American government debt has now fallen below the rate on the 2-year equivalent. Right now, two-year Treasuries are trading at a yield of 1.634%, while 10-year T-Bills only offer 1.628%.

BREAKING:

*U.S. 10-YEAR YIELD BELOW 2-YEAR RATE FOR FIRST TIME SINCE 2007

The last three times this happened, U.S. recessions soon followed.https://t.co/FLWU7cF1L1 pic.twitter.com/n3cQf0yKyD

11.10am BST

Back in the markets, shares are selling off again as investors worry about the global economy.

Fears of a German recession, and news overnight that Chinese industrial production growth has hit a 17-year low, are driving the selloff.

The relief-rebound on trade optimism is fading quickly given weaker fundamentals (Germany, China data), the frustration from inconsistent policy making and the fact that delay in partial tariff is not solving any problems at all. pic.twitter.com/GZFvWCJzmE

10.57am BST

Andrew Kenningham from Capital Economics has warned that a no-deal Brexit would hurt German exporters, making a recession even more likely.

He says:

The bottom line is that the German economy is teetering on the edge of recession.

10.44am BST

The UK and Germany - Europe's largest economies - were also its worst-performing members in the second quarter of this year.

They, along with Sweden, were the only countries to suffer a contraction in April-June.

10.14am BST

NEWSFLASH: Growth across the euro area halved in the last quarter, from 0.4% to 0.2% in Q1, as Germany's contraction held the region back.

That's according to data firm Eurostat, and matches its initial estimate of eurozone GDP released at the end of July.

10.02am BST

The jump in UK inflation to 2.1% last month could spur the Bank of England to raise interest rates, despite Brexit uncertainty.

My colleague Richard Partington explains:

City economists had forecast CPI to fall to 1.9% - instead, it's now over the Bank's target of 2%.

The unexpected rise could pile pressure on Threadneedle Street to raise interest rates, even as economic growth falters, in a potential sign the UK could begin to mirror the stagflation of the 1970s - when growth stalled yet inflation continued to rise.

9.51am BST

A reminder of how Germany's economy has stumbled over the last year, including this morning's disappointing drop in GDP.

#Germany's GDP contracted for the second time in the last four quarters.

Q2 2019 GDP growth -0.1%, YoY growth -0.4%, slowest in 6 years pic.twitter.com/ZQfRfxvFpD

Sharp decline in manufacturing production -6% YoY in June

The car production has nose dived to 2009 levels pic.twitter.com/J5tTGFYUQm

9.47am BST

Brexit uncertainty may also be having a chilling impact on UK house prices - at least in the South of England.

Figures just released shows that the average property price fell in London, again, by 2.7% compared to a year ago. London house prices have now been falling over the year since March 2018.

9.33am BST

Newsflash: the latest UK inflation data is out, showing that the cost of living keeps rising.

Britain's consumer prices index rose by 2.1% in the year to July, up from 2%. That's higher than expected: economists thought the CPI would drop to 1.9%.

9.20am BST

Katharina Utermihl of Allianz has written about the growing risk of a German recession:

After a good start to the year, the German economy has gone in reverse gear. In the second quarter, seasonally adjusted GDP shrank by 0.1%.

The weak foreign trade performance and declining construction investment proved sufficient to bring the German economy to its knees, despite continued positive consumption impulses. In view of the subdued outlook for world trade and the automotive industry and lingering elevated political uncertainty around trade, Italy and Brexit, at best mini-growth rates can be expected in the coming quarters.

9.14am BST

In better news for the eurozone, French joblessness has hit its lowest level since the financial crisis.

France's unemployment rate fell to 8.5% in the second quarter from 8.7% in the first, according to data from the INSEE national statistics office, marking the lowest jobless rate in the euro zone's second-biggest economy since the end of 2008.

Six economists polled by Reuters had forecast on average an unemployment rate of 8.7% for the second quarter.

9.10am BST

Just in: The Netherlands economy outperformed Germany in the last quarter.

#Netherlands #GDP Growth Rate QoQ Flash at 0.5 https://t.co/8woVJeZF2Q pic.twitter.com/LF4vDVgjYy

9.07am BST

Germany's weak (non) growth report has dampened the mood on the Frankfurt stock exchange.

9.04am BST

Matthias Weber, economist at the University of St.Gallen, argues firmly that Germany should increase government spending to shore up growth -- especially as borrowing costs are so low.

Given the current economic situation at the beginning of a recession, now would be the perfect time for Germany to support the economy by investing in its future.

Public investments in railways, roads, bridges, childcare centres, public schools, and renewable energy are much needed. Such investments could currently be made at an extremely low (even negative) interest rate and they would boost the slowing aggregate demand. It is unfortunate that some politicians cling to an economically unsound "concept" of zero debt and therefore miss out on these investment opportunities for Germany.

8.50am BST

German government bonds prices have jumped to fresh record highs this morning, driving down the yield (or interest rate) on the debt to new record lows.

The yield on Germany's 10-year bund has now hit MINUS 0.62%, the lowest ever - meaning traders are paying MORE than the face value of the bonds.

8.37am BST

Strategist Andreas Steno Larsen of Nordea Markets says Germany's woes aren't a surprise, given all the grim economic data recently:

German Q2 growth at -0.1% q/q.

It always surprises me how everyone gets surprised by recessions.

It has been pretty clear for a while that Germany was on the brink of a recession. Just look at PMIs, Sentix Survey or the IFO.

Next up, the Euro area as a whole? pic.twitter.com/sKxD8fgdjT

8.33am BST

Economist Oliver Rakau of Oxford Economists suggests Berlin could launch a 'cash for clunkers' scheme - subsidising new car sales - to ward off a recession.

But stimulating the economy won't be easy, he warns in this Twitter thread:

The contraction in German Q2 GDP will further fuel speculation about an imminent recession and raise the pressure on the government to provide a fiscal response. 1/n

The outlook for Q3 is extremely subdued with industry likely headed for another contraction and exports unlikely to see much joy amidst weak global trade. Domestic demand should still hold on, but will continue to struggle to fully compensate. 3/n

The case for fiscal stimulus is getting stronger, but it is not straight-forward how the government should response to the sector-specific shock in the automotive industry and the weakness in global trade amidst still tight domestic labour markets & construction capacities. 4/n

Targeting the car industry with a new cash for clunkers program focused on EVs & hybrids may provide the most bang for the buck as VW and Co. are expected to extend their offerings in the coming quarters. But it may be politically challenging. 5/n

In contrast, the near universal call for higher public investment faces short-term hurdles with backlogs still growing across the industry. The best the government can do right now is providing a long-term perspective to construction firms so they keep on expanding capacities.6/n

8.13am BST

The slump in German growth could force Angela Merkel to ditch her long-running opposition to government borrowing.

Germany's 'debt brake' law forces its leaders to run balanced budgets, rather than running up deficits. But with an economy struggling, and borrowing costs extremely low, there's a strong argument for tapping the bond market to fund more investment.

We are getting to a point where the German government has to do something to stimulate the economy.

"It's true, we're heading into a difficult phase....We will react depending on the situation."

8.00am BST

Unicredit analyst Andreas Rees reckons Germany's economy has been hurt by the uncertainty over Britain's exit from the European Union.

Rees says:

For a year now, the German economy has been only crawling forward.

Besides Brexit, this is above all the U.S.-Sino trade dispute and possible U.S. tariffs on European cars.

7.53am BST

Today's GDP report marks "the end of a golden decade for the German economy", says Carsten Brzeski, chief economist for Germany at Dutch bank ING.

Brzeski sounds deeply disappointed to learn that the German economy contracted by 0.1% in the last quarter.

Trade conflicts, global uncertainty and the struggling automotive sector have finally brought the German economy down on its knee.

In particular, increased uncertainty, rather than direct effects from the trade conflicts, have dented sentiment and hence economic activity.

It was a decade of strong growth on the back of earlier structural reforms, fiscal stimulus, globalisation at its peak and steroids provided by the ECB in the form of low-interest rates and a relatively weak euro.

This decade, in which strong German growth looked so effortless, is coming to an end.

7.47am BST

Here's Nadia Gharbi of Pictet Asset Management:

No upside surprise in Germany. Real GDP fell by 0.1% q-o-q in Q2, decelerating from a 0.4% rise in Q1. We don't have numerical details but destatis mentioned that domestic demand contributed positively to growth, while foreign trade was a drag (1/n) pic.twitter.com/sZoh7KKUyM

7.46am BST

Germany is clearly struggling, but it's not alone.

Last week, we learned that Britain's economy contracted by 0.2% in the second quarter of this year, as the boost from Brexit stockpiling earlier in the year faded.

German Economy Contracts as #Trade Tensions Take Their Toll - Bloomberg#GERMANY Q2 PRELIMINARY GDP Q/Q: -0.1% V -0.1%E
*Link: https://t.co/ADOz5hVN89 pic.twitter.com/9rqQR4I8cE

7.36am BST

Several economists are warning that Germany's economy could still be shrinking - plunging it into a full-blown recession.

Katharina Utermihl, senior economist for Europe at insurance giant Allianz SE, points out that Germany has looked very weak this summer:

#Germany: Q2 GDP declined by 0.1% q/q. Private & public consumption as well as business investment continued to support growth, but construction investment and net exports proved to be a drag. Given the very weak stark to Q3, the risk of a recession is high. https://t.co/uYWtGDL4mx

German GDP fell by 0.1 percent in Q2. This increases the risk of Germany going into recession. Our @imkflash business cycle indicator now shows a probability of 43 percent for an imminent recession in Germany, up 6 points against July. 2/

Just in: German economy shrinkes 0,1 pp in Q2. Not as bad as some expected. But last industry orders und production signal a stronger slump for Q3. So, Germany is very likely in a technical recession right now.

7.27am BST

Germany isn't technically in recession yet -- that would mean two successive quarters of negative growth.

But still.... its economy has really struggled over the last year, and has contracted in two of the last four quarters.

7.20am BST

Germany's exporting powerhouse stumbled in the April-June quarter.

German exports fell during Q2, Destatis says, which is why the economy shrank by 0.1%.

Household final consumption expenditure increased, together with government final consumption expenditure.

In addition, more was invested than in the first quarter, however, gross fixed capital formation in construction declined. The development of foreign trade slowed down economic growth because exports recorded a stronger quarter-on-quarter decrease than imports.

7.10am BST

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

Gross domestic product in the 2nd quarter of 2019 down 0.1% on the previous quarter. https://t.co/fsQPJMuMGi #GDP pic.twitter.com/H1RSx7EDYf

Source	RSS or Atom Feed
Feed Location	http://feeds.theguardian.com/theguardian/business/economics/rss
Feed Title
Feed Link	http://feeds.theguardian.com/