After a choppy morning’s trading, the US stock market is back where it started. The Dow and the S&P 500 are both flat, although the Nasdaq is still lower (-0.2%).
Europe is still nursing losses, with the FTSE 100 down 40 points (-0.6%) in late trading.
Fiona Cincotta, analyst at City Index says the inversion of the yield curve for US government debt has worried traders:
The yield of the 3-month treasury topping its 10-year counterpart is often considered a warning for a recession. The last time this happened was pre the financial crisis in 2007. With recession warnings sounding, traders are growing increasingly nervous.
There is a definite uneasiness surrounding the state of the global outlook, which investors just can’t shake off. As a result, demand for risker assets has fallen sharply and we are seeing increased flows into safe havens, such as the Japanese yen and gold.
Time for a quick recap.
Anxiety over the slowing global economy, and warning lights flashing in the US bond markets, are weighing on stock markets today.
Asian investors have rushed to sell shares, catching up with last Friday’s chunky selloff in Europe and America. Japan’s Nikkei was the standout victim, shedding 3% in its worst day of the year.
Investors pointed to weak economic data in recent days, including a glut of disappointing eurozone factory reports released on Friday.
European stock markets have posted fresh losses, with the FTSE 100 currently down 53 points or -0.75% at 7154.
In New York, the Dow Jones industrial average has hit a two-week low, with banks and tech firms among the fallers.
Photograph: Bloomberg TV
The sell-off is being partly driven by a sharp fall in the yields, or interest rate, on longer-dated US government bonds. This has caused the US yield curve to ‘invert’ — meaning investors no longer get a better rate of return for holding long-maturity bonds.
Holger Zschaepitz (@Schuldensuehner)
The scariest chart of these days. US 10y yields in free fall. Plunges to 2.42%, lowest since 2017. pic.twitter.com/ljpEaw1kVR
That matters…because an inverted yield curve suggests slower growth, or even a recession, looming
Economist Ted Bauman explains:
For forecasters, inverting yield curves have about the same significance as voodoo cursed totems for followers of that religion. That’s because they have preceded the last seven official U.S. recessions. They are therefore not to be taken lightly.
The oil price is also weaker today; Brent crude has lost 0.5% to $66.68 per barrel, on fears of slower global growth.
A new survey of German confidence brought some relief, with bosses saying they’re more confident about business conditions. However, German manufacturers continue to struggle, as Brexit uncertainty and trade war fears bite.
Philippe Waechter (@phil_waechter)
In #Germany, the #Markit manufacturing index and the #IFO manufacturing index have exactly the same profile. The negative shock from the rest of the world is hurting the manufacturing sector and the German economy. Those who think the IFO is better shaped are wrong pic.twitter.com/Pt9ettaj5D
Anxiety over a global slowdown has pushed the US Dow Jones industrial average to a two-week low:
The Dow over the last three months Photograph: Refinitiv
Back in New York, the sell-off is gathering pace.
The Dow is now down 93 points, or 0.4%, at 25,409, adding to the 460-points lost on Friday.
Back in London, the FTSE 250 index of mid-sized firms just hit a new six-week low, down 1.1% today.
Brexit anxiety can take the blame, along with worries about the global economy.
The sell-off deepened as the DUP Party announced that it still opposed Theresa May’s Withdrawal Agreement, meaning little chance that the third Meaningful Vote on the deal will go better than the first two.
Spokesman: DUP Leader Advised UK PM May That Nothing Had Change In Their In Their Position On Divorce Deal $GBPUSD
Paul Brand (@PaulBrandITV)
DUP source tells me “nothing has changed”. They still can’t support PM’s deal. So where does that leave MV3 tomorrow? Dead already?
Ding ding! Wall Street has opened for a new week, and shares are dipping.
The S&P 500 index lost 4.9 points, or 0.17%, in early trading, while the Dow Jones industrial average has dropped by 28 points or 0.1% — having lost 1.7% in Friday’s rout.
Traders will be taking some comfort from the rise in German business confidence, but concerns of a looming recession haven’t evaporated.
The drop in longer-term US bond yields (‘inverting the yield curve’, such that 10-year debt carries the same interest rate as three-month bonds), continues to eat away at Wall Street confidence.
Esty Dwek, senior investment strategist at Natixis Investment Managers, explains:
- The 3-month to 10-year portion of the US yield curve finally inverted on Friday.
- While we expected the long end of the curve to hold up better, disappointing economic data on Friday led to a sharp drop in longer duration Treasury yields. Coupled with the expectation that the Fed’s announced pause will be followed by a cut rather than a further hike, this lead the curve to invert.
- Equity markets corrected on increased recession fears, as data deteriorated and an inverted curve has often been the precursor to a recession, albeit with a 12-18 month lag.
Things may be bad now for Germany’s factories, but a no-deal Brexit would make things much worse.
So argues Neil MacKinnon, Global Macro Strategist at VTB Capital:
“The fact that the German manufacturing sector is in trouble shows how the downturn in global trade is affecting a key exporting economy (the PMI index is at a 79-month low). The same applies in Japan, where the latest PMI index for the manufacturing sector highlighted that new export orders are decreasing at a faster rate.
A ‘no-deal’ Brexit shock would make things worse for German exporters, given the trade surplus with the UK in goods.”
According to the Office for National Statistics, Britain ran a £31bn trade deficit with Germany, buying nearly twice as much as it sold to Europe’s largest economy.
]This may explain why Angela Merkel took a softer line over Brexit than some other leaders (Oui toi, Monsieur Macron) at last week’s summit.
The windows of the Canary Wharf offices of JP Morgan in London. Photograph: Neil Hall/Reuters
Brexit just got real for hundreds of staff at JP Morgan.
Bloomberg is reporting that the investment banking giant is asking 300 staff to sign new contracts, which state they’ll leave the UK if Britain leaves the EU without a deal.
The employees, who work in areas such as sales and risk, have been presented with contracts in the last week that demand they relocate to a European Union country such as Germany or France in a no-deal scenario, the people said, declining to be identified as the details are private.
The affected staff were warned months ago of the possibility, but with JPMorgan activating its Brexit contingency plans, they now must decide whether to move or risk losing their jobs, the people said. The bank plans to redeploy staff to other roles in order to avoid layoffs, one person said.
All the major investment banks have opened new operations in the EU, or expanded existing ones, in preparation for Brexit. Once the UK has left, City banks will no longer be eligible for ‘passporting rights’ allowing them to offer services across the EU.
London bankers have been reluctant to shift to other cities, though. Some had hoped to leave their families behind and commute to and from Frankfurt, say, or Dublin. However, several major banks have warned that they won’t pick up the tab….
Here’s some more analyst reaction to the German confidence data:
Asif Abdullah (@Asif_H_Abdullah)
German IFO was better than expected, and talking heads are talking about a potential rebound.
But manufacturing remains negative.
And it is manufacturing that matters the most for Germany. So I do not see this reading as really positive. pic.twitter.com/tPjaeJtsS3
Francesc Riverola – FXStreet.com 🎗 (@Francesc_Forex)
Nordea Bank 1/3: The #Ifo index rebounded, questioning the very negative message given by the #PMIs last week. Ifo suggests that after a substantial fall, confidence could be stabilizing. Manufacturing confidence continued to fall, keeping risks firmly to the downside. pic.twitter.com/shTki8BRmK
The London Stock Exchange offices in the City of London. Photograph: Toby Melville/Reuters
European stock markets are heading south again…. proving that it takes more than one decent blob of economic data to raise spirits.
The blue-chip FTSE 100 index is down 50 points as lunch approaches, a drop of 0.7%. Packaging firm DS Smith (-3.3%), equipment rental firm Ashtead (-3%) and jet engine maker Rolls-Royce are the top fallers.
Britain’s FTSE 250, which contains mid-sized companies with a greater UK focus, has shed 1%, hitting its lowest level since February 13.
Germany’s DAX is now down 0.2%, while France’s CAC is down 0.25% — a small drop, but on top of Friday’s tumble.
The pick-up in German business confidence, though welcome, hasn’t dispelled worries about the world economy.
Plus, the fact German factory bosses are gloomier has highlighted the weakness in global manufacturing – particularly in the eurozone.
James Athey, senior investment manager at Aberdeen Standard Investments, says:
“There’s a pretty obvious weakness in growth and markets need to come to terms with that.”
In other news, UK satellite operator Inmarsat has fallen to a takeover offer, ending a spirited battle to remain independent.
Back on terra firma, wine operator Majestic is planning to shut stores and rebrand itself as Naked Wine (which it acquired a couple of years ago).
The pound continues to be jolted around by the latest Brexit developments.
Sterling is down almost half a cent at $1.317 this morning, as MPs prepare to vote on whether to “take control” of the process (and Theresa May faces her cabinet).
The European Commission has piled more pressure on the UK, warning that it is “increasingly likely” to leave without a deal.
In a “no-deal” scenario, the UK will become a third country without any transitionary arrangements. All EU primary and secondary law will cease to apply to the UK from that moment onwards. There will be no transition period, as provided for in the Withdrawal Agreement. This will obviously cause significant disruption for citizens and businesses.
In such a scenario, the UK’s relations with the EU would be governed by general international public law, including rules of the World Trade Organisation. The EU will be required to immediately apply its rules and tariffs at its borders with the UK. This includes checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms. Despite the considerable preparations of the Member States’ customs authorities, these controls could cause significant delays at the border. UK entities would also cease to be eligible to receive EU grants and to participate in EU procurement procedures under current terms.
Similarly, UK citizens will no longer be citizens of the European Union. They will be subject to additional checks when crossing borders into the European Union. Again, Member States have made considerable preparations at ports and airports to ensure that these checks are done as efficiently as possible, but they may nevertheless cause delays.
The EC has just issued new guidance for firms and individuals, explaining what happens in a no-deal scenario.
European Commission 🇪🇺 (@EU_Commission)
If you intend to travel between the UK and the EU in the event of ‘no deal’, #Prepare4Brexit on:
👮♂️ Border checks, visa and customs checks, VAT refund
🚄 Passenger rights
🎫 Validity of tickets
🌡 Healthcare when travelling
🚙 Driving licences
🤳 Roaming pic.twitter.com/Bg2Ok62Ctl
European stock markets have recovered some of their earlier losses, thanks to the rise in German business confidence…
…however Ken Odeluga of City Index fears further losses ahead.
Ken Odeluga (@Ken_CityIndex)
Europe stocks pull away from lows after #IFO biz sentiment upside surprise.
-10yr bund yield back above ‘0’
–Profit taking helps
–This is very probably just a breather before risk sell-off resumes ^KO pic.twitter.com/qsnXJL3mqJ
Here’s IFO president Clemens Fuest’s take on Germany’s economy, based on its survey of German business leaders:
In manufacturing the business climate weakened once again. The manufacturers assessed their current business somewhat less positively. The outlook also worsened. The expectations component fell to its lowest value since November 2012. With declining demand, businesses hardly expect any more increases in production.
In the services the index rose noticeably, mainly as a result of clearly more optimistic expectations. The service providers gave more positive assessments to their already favorable business situation.
In trade the business climate improved. Appraisals of the current situation rose to their highest level since May 2018. Also the business expectations brightened. Especially the retailers reported a very good current situation.
In construction the business climate index rose, after a weakening trend in past months. This was the result of a clearly improved current business situation. The outlook remains largely unchanged.
The IFO Institute predicts that Germany’s economy will only grow by 0.6% this year.
That would be rather weak by historical standards, and follow on from a disappointing performance in 2018 — no wonder investors are worried about the global economy!
Rupert Seggins (@Rupert_Seggins)
All 36 OECD countries have reported GDP growth figures for Q4 2018. Central & Eastern Europe seeing the strongest growth with Latvia’s 5.6%y/y out on top. All G7 barring the US were in the bottom third. Turkey the standout for all the wrong reasons with a -3.1%y/y fall. pic.twitter.com/DNsvHLowj2
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