The yield on the closely watched 10 year US Treasury bonds fell so low Wednesday (local time) that, for the first time since 2007, it briefly crossed a threshold that has correctly predicted many past recessions.

By Ian Horswill


Posted on August 15, 2019

US President Donald Trump has defended his tough trade sanctions against China as the Dow Jones Industrial Average sank 800 points after the US bond market flashed a warning sign about a possible recession for the first time since 2007.

The three main stock markets closed 3% down, with analysts pointing to signals the US may be heading for recession. Weak economic data from Germany and China helped fuel a rush for haven assets like gold, which gained US$13.70 to US$1,515.90 per ounce, close to a six-year high.

A whopping A$38 billion has been wiped off Australia’s ASX in Thursday morning trading (local time).

Analyst Oliver Pursche, from Bruderman, told BBC News the global picture was precarious.

“What’s happening in Hong Kong, what’s happening with Brexit and the trade war, it’s all a mess,” the chief market strategist said. “Every central bank around the world is trying to prop up economies and every politician around the world is trying to destroy economies.”

The yield on the closely watched 10-year US Treasury bonds fell so low Wednesday (local time) that, for the first time since 2007, it briefly crossed a threshold that has correctly predicted many past periods of recession.

The recession warning left investors agitated, responding by dumping stocks, sending the Dow Jones Industrial Average into an 800-point skid, its biggest drop of the year. The S&P 500 index dropped nearly 3% as the market erased all of its gains from a rally the day before. Tech stocks and banks led the broad sell-off. Retailers came under especially heavy selling pressure after US department store chain Macy’s issued a dismal earnings report and cut its full-year forecast.

Donald Trump

The recession panic was started when it was announced Germany’s Gross Domestic Product contracted in the second quarter, and China’s industrial growth in July hit a 17-year low. The UK FTSE 100 closed down 1.5%, while in Germany and France the markets finished more than 2% lower. The US S&P 500 fell 85.72 points, or 2.9%, to 2,840.60. The Dow sank 800.49 points, or 3%, to 25,479.42. The Nasdaq composite lost 242.42 points, or 3%, to 7,773.94. The Russell 2000 index of smaller company stocks slid 43.05 points, or 2.8%, to 1,467.52, AP News reported.

Trump, who has delayed tariffs on about US$160 billion in Chinese goods that were set to take effect on 1 September, took to Twitter to defend his policies, saying “we are winning big time, against China.”

Trump also slammed the Federal Reserve for hamstringing the US economy by raising rates “too much & too fast” last year and not reversing its policy aggressively enough — the Fed cut its key rate by a quarter point last month.

In Asia, Japan’s Nikkei 225 rose 1%, the Kospi in South Korea gained 0.7% and the Hang Seng in Hong Kong added 0.1%.