Recession fears grip markets

Is the fear justified?

While the US 3-month/10-year yield curve had largely maintained grounds in inversion territory in the past 3-months, the relatively popular US 2-10-year yield curve had been the latest to join the movement. Despite the letting up of fear with the partial tariffs delay announced by President Donald Trump, the market took to the latest indication of recession, aided to some extent by the disappointing Chinese data releases and the softer German growth and eurozone data on Thursday.

In turn, this had seen to the steep sell-off across the likes of the Dow and the S&P 500 index, with the Dow registering the biggest decline this year in the Wednesday session. Likewise, for the CBOE volatility index, a clear indication of the return in volatility had also been registered with the index ending 22.10 in the prior session.

The magnitude of the movements marks the knee-jerk reaction in the market seen towards the 2-10 inversion, though one does ponder over whether this fear is justified. Looking back at the data seen across the market, signs of slowing had been broadly reflected but little suggested that we are on the edge of a recession. That said, these are also backward-looking numbers and against the backdrop of the latest developments, particularly from US-China trade tension aggravation, it may be hard to say how close we are at present to recession across key regions around the globe. This also explains the bond market situation as the search for safety comes across as the natural course of action amid the volatility in the equity space.

Source: Refinitiv

Asia open

Against the backdrop of a sudden aggravation of growth concerns following the latest bond market indication, Asia markets would likewise have steep declines to clock. Early movers across the likes of the ASX and the Nikkei have both slipped around 2.0% when last checked. Following the wiping out of year-to-date gains for the Hong Kong HSI, it will be watching other Asia markets including the local STRAITS this week for whether the same may occur. President Donald Trump had tweeted in the early hours on a ‘personal meeting’ with President Xi Jinping with regards to the Hong Kong issue and amid the ongoing trade tensions, it appears that the market is making little out of this comment. USD/JPY (大口） seen little changed at around 105.90 after edging lower overnight.

Watch the key US retail sales and industrial production releases later in the day against the wave of recession fears that could send ripples across markets.

Yesterday: S&P 500 -2.92%; DJIA -3.05%; DAX -2.19%; FTSE -1.42%