Global Stock Indexes Take a Beating
Concerns about a global economic slowdown and a recession in the United States sent global stock indexes broadly lower during Monday’s Asian session and sparked concerns that the downward spiral would continue into the European and New York trading sessions. Japan’s Nikkei 225 saw its steepest one-day decline since December 2019 on Monday, plunging 3.01 percent as of 2:52 p.m. HK/SIN. Hong Kong’s Hang Seng Index was down sharply as well, with a 2.12 percent decline in the mid-afternoon. China’s benchmark indexes, the Shanghai Composite and the Shenzhen Composite were down 1.61 percent and 1.62 percent respectively.
Investor fears were compounded by U.S. Treasury yields which inverted on Friday for the first time since 2007. Such a move has historically signaled an upcoming recession. An inverted yield curve is when short-term bond rates are higher than long-term bond rates, which can harm bank lending profits. Analysts have warned that the markets may not stabilize until bond yields stabilize, though the market hasn’t yet provided an indication that such a move will be imminently forthcoming.
But the news may not be all bad, at least not in the near term. According to research by Credit Suisse analysts, stocks tend to rise an average of 15 percent in the 18 months following inversions. This can be good news for traders who have time to wait. On the other hand, historical research indicates that stock markets tend to head south 24 months after an inversion.
On the currency markets, the dollar index was modestly lower, down 0.02 percent to 96.63 .DXY The greenback gained 0.15 percent against the yen to trade at 110.07, but it was lower against the euro, the pound and the Canadian dollar. The British pound saw the steepest against the dollar, up 0.25 percent against the greenback, as traders waited to see how the Brexit plans would develop in advance of the expected exit later this month.