Asian stocks stumbled and oil prices extended a punishing sell-off on Thursday as investors feared an historic drop in long-term U.S. bond yields could portend a recession globally.
The threat to global demand took a heavy toll on oil prices, with Brent crude losing another 0.6% to $59.12 a barrel, after shedding 3% overnight. U.S. crude was last down 0.4% at $55.03.
Safe-haven gold gained 0.3% to $1,521.00 per ounce XAU=, not far from its highest since April 2013.
Spooked investors stampeded to the safety of sovereign debt and drove yields on 30-year Treasuries to all-time lows at 1.965%. Yields have now fallen a staggering 60 basis points in just 12 sessions to pay less than three-month debt.
Yields on 10-year paper dropped to 1.545%, taking them under two-year paper. Such an inversion was last seen in 2007 and correctly foretold the great recession that followed a year later.
“The yield curves are all ‘crying timber’ that a recession is almost a reality and investors are tripping over themselves to get out of the way as economic recession hurts corporate earnings and stocks can drop as much as 20%,” said Chris Rupkey, chief financial economist at MUFG Union Bank.
The only saving grace was that the sheer scale of the scare would be bound to alarm central banks everywhere and likely draw a policy response, especially from the Federal Reserve.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.7% and briefly touched a seven-month low.
Japan’s Nikkei average .N225 was off 1.3%, while China’s benchmark Shanghai Composite. SSEC lost 0.4% and Hong Kong’s Hang Seng. HSI stood flat on the day.
All three of the major U.S. stock indexes tumbled about 3% overnight, with the blue-chip Dow .DJI posting its biggest one-day point drop since October.
Global growth woes have mounted as the Sino-U.S. trade war claimed ever more victims, with the German economy contracting in the June quarter and a truly dire set of activity data for July out of China.
President Donald Trump on Wednesday seemed to tie a U.S. trade deal with China to a humane resolution of the weeks of protests wracking Hong Kong.
A top Australian central banker on Thursday warned a world downturn could become “self-fulfilling” if the uncertainty over trade led businesses to put off investment indefinitely.