U.S. Treasuries signal trouble, stocks fall on global growth worries
* U.S. 3-yr/10-yr curve inverts, German yields turn negative
* Global stocks tumble, oil falls
* U.S., European data miss expectations
* Graphic showing inversion https://tmsnrt.rs/2UNVc1P
(New throughout, updates prices, market activity and comments
By Sinéad Carew
NEW YORK, March 22 (Reuters) - Stocks around the world fell
and U.S. Treasuries yields sent warning signals for a possible
recession on Friday after weaker-than-expected U.S. and European
data intensified fears of a global economic slowdown.
After weak U.S. manufacturing and services data, U.S.
Treasury 10-year note yields sank below three-month Treasury
bill yields for the first time since 2007. Investors fled from
riskier bets as a yield curve inversion is seen as a leading
Earlier, German 10-year bond yields dived below
zero for the first time since October 2016 after German data
showed manufacturing contracted in March for a third straight
month. Factory activity across the euro zone looked equally
Wall Street followed European shares lower and losses
deepened even as strategists said a recession would take time to
materialize or could even be averted.
"Our various models do see an uptick in recession
probability but are flashing yellow versus red,” said Dan
Ivascyn, group chief investment officer at Pacific Investment
Management Co (Pimco) in Newport Beach, California.
All three major U.S. stock indexes registered their biggest
one-day percentage losses since Jan. 3.
The Dow Jones Industrial Average fell 460.19 points,
or 1.77 percent, to 25,502.32, the S&P 500 lost 54.17
points, or 1.90 percent, to 2,800.71 and the Nasdaq Composite
dropped 196.29 points, or 2.5 percent, to 7,642.67.
The pan-European STOXX 600 index lost 1.22 percent
and MSCI's gauge of stocks across the globe shed
"The historical narrative behind that inversion is
significant," said Peter Kenny, Founder of Kenny’s Commentary
LLC and Strategic Board Solutions LLC in New York.
"It is not however, a foregone conclusion that we will see a
recession in 2019. It is an indication there is weakness on the
horizon and frankly a lot of that weakness in that narrative is
really being fed, fueled by what we are seeing around the
The U.S. Federal Reserve on Wednesday adopted a more-dovish-
than-expected stance, announcing no further interest rate hikes
planned for this year and an end to its balance sheet roll-offs.
While some strategists said the Fed could start to cut
interest rates to stave off a recession, others were cautious.
"I think the earliest would be December and even then I
think it might just be a little too early," said Justin Lederer,
interest rate strategist at Cantor Fitzgerald in New York.
Preliminary measures of U.S. manufacturing and services
activity for March showed both sectors grew at a slower pace
than in February, according to data from IHS Markit.
Manufacturing activity grew at the slowest pace since June 2017,
and both the manufacturing and services purchasing manager index
readings were weaker than analysts had forecast.
Even before the U.S. data, the 10-year yield had broken
below the psychologically significant 2.5 percent level and went
on to hit its lowest level since December 2017.
Benchmark 10-year notes last rose 29/32 in price
to yield 2.4373 percent, from 2.539 percent late on Thursday.
Adding to the uncertainty were worries over how much
progress the United States and China will make in their next
round of trade talks.
U.S. President Donald Trump said negotiations were
progressing and a final deal "will probably happen," adding that
his call for tariffs to remain on Chinese imported goods for
some time did not mean the talks were in trouble.
Clete Willems, a top U.S. trade official who has been a key
figure in China negotiations with China, said he would leave in
coming weeks to spend more time with his family.
The dollar index rose 0.14 percent, with the euro
down 0.69 percent to $1.1295.
But the Japanese yen strengthened 0.78 percent versus the
greenback at 109.98 per dollar, while Sterling was last
trading at $1.3204, up 0.74 percent on the day.
After plunging toward $1.30 on Thursday, Sterling recovered
a little after European Union leaders gave Prime Minister
Theresa May a two-week reprieve, until April 12, to decide how
to leave the European Union.
Oil fell as much as 2.5 percent on demand worries as
investors feared a slowdown in the global economy.
U.S. crude fell 1.9 percent to $58.84 per barrel.
Brent cure futures settled down 83 cents or 1.22 percent at
$67.03 per barrel.
(Additional reporting by Kate Duguid, Richard Leong, Saqib
Iqbal Ahmed, Karen Brettell, Chuck Mikolajczak, April Joyner and
Jennifer Ablan in New York, Karin Strohecker and Marc Jones in
London, Hideyuki Sano & Tomo Uetake in Tokyo; Graphic by Sujata
Rao; Editing by Toby Chopra, Dan Grebler and David Gregorio)
First Published: 2019-03-22 03:13:55
Updated 2019-03-22 22:34:21
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