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Aug 14, 2019

Dow sinks in worst day of year as economic worries mount

BNN Bloomberg's closing bell update: Aug. 14, 2019

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U.S. stocks suffered one of the deepest sell-offs of the year and Treasuries surged as mounting signs of a global economic slowdown stoked fears of an economic recession.

The S&P 500 sank almost 3 per cent and the Dow Jones Industrial Average plunged 800 points in its worst rout of the year, sparked when the 10-year Treasury rate slid below the two-year for the first time since 2007. The 30-year yield fell to the lowest on record. Financial shares plunged 3.5 per cent led by a 4.2 per cent rout in Goldman Sachs Group Inc. All of the 30 Dow components retreated.

Volatility has gripped the S&P 500 since President Donald Trump rekindled the trade war at the start of August. The index has swung at least 1 per cent intraday for 11 straight sessions and is now down 6.1 per cent from its July record. Oil sank 3.5 per cent, gold rallied and the dollar rose.

“With U.S.-China trade uncertainty lingering, investors are increasingly selling first and asking questions later,” Said Alec Young, managing director for global markets research at FTSE Russell. “The only thing seemingly capable of reversing the volatility is credible evidence global growth is bottoming out. That seems too much to hope for right now.”

European shares lost more than 1.5 per cent after Germany’s economy contracted in the second quarter, adding to angst fueled 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 bunds sliding to another record.

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 U.S. 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 Trump warned of Chinese troops massing on the border.

Too early to sell on recession fears: Portfolio manager

Andrew Pink, portfolio manager at LDIC Inc., explains why he's been focusing on interest-rate-sensitive areas of the stock market such as REITs and utilities, while also beefing up exposure to corporate bonds. Pink also says it's too early to sell stocks because of inverted yield curves that are signalling the approach of a possible recession.

Here are the main moves in markets:

Stocks

The S&P 500 Index fell 2.9 per cent as of 4 p.m. New York time.
The Dow Jones Industrial Average lost 3.1 per cent and the Nasdaq 100 fell 3.1 per cent.
The Stoxx Europe 600 Index fell 1.7 per cent.
Germany’s DAX Index sank 2 per cent.
The MSCI Emerging Market Index rose 0.2 per cent.
The MSCI Asia Pacific Index jumped 0.9 per cent.

Currencies

The Bloomberg Dollar Spot Index rose 0.3 per cent.
The euro increased 0.3 per cent to US$1.1143.
The British pound climbed 0.1 per cent to US$1.2073.
The Japanese yen jumped 0.7 per cent to 106.01 per dollar.

Bonds

The yield on 10-year Treasuries sank 12 basis points to 1.59 per cent.
The yield on two-year Treasuries declined nine basis points to 1.58 per cent.
The 30-year rate fell to 2.034 per cent.
Germany’s 10-year yield declined four basis points to -0.65 per cent.

Commodities

Gold futures rose 0.8 per cent to US$1,526.60 an ounce.
West Texas Intermediate crude decreased 3.5 per cent to US$55.11 a barrel.

— With assistance by Adam Haigh, John Ainger, and Laura Curtis

 

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