‘This is neither healthy nor normal’ — recession and trade-war fears are gripping investors

REUTERS/Jason Reed

"This is neither healthy nor normal," one analyst said about the "staggering" gap of 47 basis points between three-month and 10-year US Treasury yields.
European and Asian stocks dropped on Wednesday as traders reacted to fresh evidence of a looming recession and braced for another round of tariffs in the US-China trade war. US futures signaled a flattish open.
The US is set to slap tariffs on more Chinese goods on Sunday, and China plans to retaliate with duties on US goods the same day.
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The US-China trade war is raging on, and the latest red flag for global growth shows no sign of abating. Those fears are gripping investors on Wednesday as global stock markets dip, while US futures are set for a flattish open.

Yields on short-term government bonds rose, while those on long-term bonds plumbed new lows, as investors bet on lower growth in the future.

The 30-year Treasury yield also fell to a record low of 1.906%.

"The trade dispute is now entering its second year and the impact is being felt on the global economy," said Jasper Lawler, head of research at London Capital Group, in a note on Wednesday morning. "Recession warning bells sounded once again in the bond market, which is likely to keep traders on edge across the session."

The spread between three-month and 10-year US Treasury yields grew to a "staggering" 47 basis points, Michael Every, senior Asia-Pacific strategist at Rabobank, said in a research note. "This is neither healthy nor normal."

Moreover, the difference between two-year and 10-year Treasury yields widened to 6.2 basis points — the largest gap since 2007, Reuters said, citing Tradeweb data.

Here’s the market roundup as of 9:42 a.m. (4:42 a.m. EST):

European equities have dropped with Germany’s DAX and the Euro Stoxx 50 down 0.6%. Britain’s FTSE 100 rose 0.3%, as oil stocks gained.
Asian indexes were broadly lower with China’s Shanghai Composite down 0.3% and Hong Kong’s Hang Seng down 0.2%. Japan’s Nikkei climbed 0.1%.
US stocks are set for a muted open. Futures underlying the Dow Jones Industrial Average and Nasdaq and S&P 500 all added less than 0.1%.
Oil rose after US inventories shrunk more than expected. The price of West Texas Intermediate crude jumped 1% to $55.50 a barrel, while Brent crude rose 0.6% to about $59.40.
Gold was flat at $1,551.

The US-China trade war has also escalated recently. The Trump administration is preparing to slap the first of two tranches of tariffs on Chinese goods on Sunday. China plans to retaliate with duties on $75 billion worth of US goods the same day.

The chances of a trade deal between the world’s two largest economies remains unclear. President Trump said China had called to restart talks this week, only for China’s Foreign Ministry to release a statement saying it was unaware of any such call.

"Optimism of a resolution has drifted off into the distance as investors attempt to second guess the next moves in the trade dispute," Lawler said.

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Source: Business Insider – tmohamed@businessinsider.com (Theron Mohamed)