Friday 23 August 2019

Shares fall as worries of slowdown mount

Markets Report

Traders work on the floor at the New York Stock Exchange (NYSE)
Traders work on the floor at the New York Stock Exchange (NYSE)

Mounting signs of a global economic slowdown hammered stocks and drove up demand for sovereign bonds to such an extent that shorter-term yields rose above long-term rates in the US for the first time since 2007.

The S&P 500 sank more than 2pc and the Dow Jones Industrial Average plunged 600 points as the inverted gap in rates for two-and 10-year Treasuries flashed a warning that has normally preceded a recession.

Financial shares plunged 3pc led by a 4pc rout in Goldman Sachs Group Inc. All but one of the 30 Dow components fell.

The S&P 500 has now lost 5.5pc from its July record, though it remains above lows touched on August 5th, and is higher by 13pc in 2019. It' remains more than 2pc above its average price for the past 200 days, a closely watched technical level. Oil sank 5pc, while gold rallied and the dollar rose.

European shares lost more than 1.5pc after Germany's economy contracted in the second quarter, adding to angst fuelled by weak Chinese retail and industrial numbers.

The British yield curve also inverted for the first time since the financial crisis and the pound edged higher after inflation unexpectedly rose.

Government bonds rallied across Europe, with the yield on benchmark German paper sliding to another record.

On the Irish market, AIB and Bank of Ireland were also hit along with financial stocks globally, with AIB losing 6.5pc in value on the day.

The warning emanating from bond markets spooked investors already seeking shelter from the fraught geopolitical climate and the impact of the global trade war just a day after equities rallied on a tariff reprieve from President Donald Trump.

While curve inversions normally precede economic downturns, they do not necessarily signal imminent doom.

"This is not a positive sign for the market," Jonathan Golub, chief US equity strategist at Credit Suisse, said on Bloomberg TV.

"The Fed is totally empowered to change this dynamic and the market is saying they have to."

Meanwhile, Hong Kong's airport resumed normal operations after a chaotic night of protest in which demonstrators beat and detained two suspected infiltrators and Mr Trump warned of Chinese troops massing on the border.

Bloomberg

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