· The yield on the benchmark 10-year Treasury note broke below the 2-year rate early Wednesday, an odd bond market phenomenon that has been a reliable, albeit early, indicator for economic recessions.
The yield on U.S. 30-year bond also turned heads on Wall Street during Wednesday’s session as it fell to an all-time low, dropping past its prior record notched in summer 2016. The two historic moves coming in tandem show that investors are increasingly worried, and indeed preparing for, a slowdown in both the U.S. and global economies.
Earlier Wednesday, the yield on the benchmark 10-year Treasury note was at 1.623%, below the 2-year yield at 1.634%. In practice, that means that investors are better compensated for loaning the U.S. over two years than they are for loaning for 10 years. The yields steepened later in the session, pushing the 10-year rate back above that of the 2-year note at 1.58%.
The yield on the 30-year Treasury bond traded at 2.02%, well below its former record low of 2.0889% hit in 2016 following Britain’s Brexit vote. Yields fall as bond prices rise.
· The yen held on to gains against major currencies in early Asian trading on Thursday as growing signs of a global economic slump drove investors into safe-haven assets.
The Swiss franc and gold also edged higher as investors fled from stocks and sought safe-haven assets after the U.S. Treasury yield curve inverted for the first time in 12 years and U.S. stocks sold off sharply.
The inversion, where 2-year yields trade higher than 10-year yields, is considered by some analysts to be a sign that the U.S. economy is likely to enter a recession.
Sentiment was already fragile after disappointing economic data from China and Germany revealed the extent of the damage the U.S.-Sino trade war is causing to two of the world’s most important exporters.
The dollar was a tad lower at 105.85 yen in Asian trading Thursday. On Wednesday, the yen rallied 0.8% versus the greenback, its biggest daily gain in two weeks.
The dollar index, which measures its value against a basket of six major currencies, stood at 97.987 after a 0.2% gain on Wednesday.
The U.S. Treasury yield curve temporarily inverted on Wednesday for the first time since June 2007. U.S. 30-year yields also plunged, dropping to a record low of 2.015%.
· China’s official midpoint reference for the yuan was set at 7.0268 per the U.S. dollar on Thursday — stronger than Wednesday’s fixing, but it was weaker than what analysts had forecast.
Analysts were predicting the midpoint to be set at 7.0236 per dollar, according to Reuters estimates.
· Jeffrey Gundlach, chief executive of DoubleLine Capital, warned on Wednesday that rate cuts by the U.S. Federal Reserve were not going to stop a recession from happening and that “once the Fed is in easing mode, it is already too late.”
In a telephone interview with Reuters, Gundlach said investors were “slowly trying to reconcile themselves that the bond market has been showing recessionary signals for quite some time.”
· Chinese e-commerce giant JD.com sees a business opportunity in factories that have been affected by trade tensions between the world’s two largest economies, the company’s chief financial officer told CNBC on Wednesday.
As JD.com seeks to tap the growth potential of China’s smaller cities, the pressure is on to undercut competitors on price and quality. Meanwhile, Chinese manufacturers are finding it more expensive to sell to the U.S. given tariffs imposed on billions of dollars’ worth of goods. Chinese exports to the U.S. have fallen for eight straight months, according to China Customs data from Wind Information.
“Given perhaps the trade tension, more and more manufacturers will actually turn their attention to (the) domestic market,” said Sidney Huang, JD.com’s chief financial officer.
· President Donald Trump on Wednesday tied a U.S. trade deal with China to humane resolution of the weeks of protests wracking Hong Kong, hours after the State Department said it was “deeply concerned” about reports of movement of Chinese paramilitary forces along the Hong Kong border.
President Donald Trump said on Wednesday that China wants to make a trade deal but it should treat Hong Kong “humanely” first, explicitly tying a trade agreement to a peaceful resolution of pro-democracy protests in Hong Kong.
Trump, in his remarks on Twitter, appeared to suggest a personal meeting with Chinese President Xi Jinping to help resolve the crisis.
A U.S. State Department spokeswoman said earlier on Wednesday that the United States was “deeply concerned” about Chinese paramilitary movement along the Hong Kong border.
The State Department’s expression of concern came after senior U.S. lawmakers from both the Democratic and Republican parties called on Trump to take a tougher line with China as worries grew over a possible Chinese intervention.
· The Labour Party has urged rebel MPs in the ruling Conservatives to help block a no-deal Brexit by bringing down Prime Minister Boris Johnson’s administration and allowing its leader Jeremy Corbyn to form a caretaker government.
He said Labour would campaign in the election to hold a second referendum on the Brexit terms, including an option as to whether the country should remain in the bloc three years after it voted to leave.
· Oil prices sank 3% on Wednesday after disappointing economic data from China and Europe revived global demand fears and U.S. crude inventories rose unexpectedly for the second week in a row.
Brent crude dropped 3.2%, to $59.36 a barrel, erasing the previous session’s sharp gains after the United States moved to delay tariffs on some Chinese products. The global benchmark rose 4.7% on Tuesday, its biggest daily percentage gain since December.
U.S. West Texas Intermediate (WTI) crude futures shed 3.3%, to $55.23 a barrel, having risen 4% the previous session, the most in just over a month.
Reference: CNBC, Reuters
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