Stocks slump as warning by bond-market rings louder

Bloomberg

Stocks extended their global retreat on Wednesday as investors fled to bonds, driving yields down to multi-year lows in a fresh wave of risk aversion. Gold advanced.
US futures slumped for the S&P 500 and Nasdaq 100 indexes, signalling an opening drop in New York. Declines in miners and tech companies pulled the Stoxx Europe 600 Index lower, after Japanese and South Korean equities bore the brunt of losses in Asia.
Chinese shares edged higher, though. The rally in 10-year Treasuries powered on, further inverting a part of the yield curve watched for its history of auguring recession.
Benchmark yields slid to the lowest since 2016 in Japan, to a record in New Zealand and below the central bank’s policy rate in Australia.
The dollar rose versus its major counterparts for a third day. The yuan steadied following news that the People’s Bank of China had injected the most in money-market operations since January.
“The drop of the US Treasury yield is an indicator of growing uncertainty,” Lena Komileva, chief economist at G Plus Economics Ltd, told Bloomberg TV in London. “It’s quite clear now that we are past that cyclical peak for earnings and the cyclical trough in credit spreads.”
Investors are gauging warning signals in fixed-income markets with little expectation of a quick improvement in the global growth outlook or the US-China trade war, as the full impact of American tariff hikes is yet to kick in. Beijing is gearing up to use its dominance of rare earths as a counter to Washington. A raft of American data on May 30 and on Friday will give traders more to chew on as they reassess the Federal Reserve’s policy path.
The yield gap between three-month and 10-year Treasuries — often watched as an early signal of pending recession — fell to a 2007 low of minus 13 basis points on Wednesday.
Elsewhere, West Texas oil futures dropped, losing all of their gains from Tuesday and more, dipping below $59 a barrel in New York.
A gauge of emerging-market stocks fell to the lowest since January and most developing-nation currencies declined versus the dollar.
China provides a first peek at its May economic performance on Friday, with economists anticipating the official manufacturing PMI will tick down to 49.9 amid the worsening trade war with the US. US first-quarter revised GDP data are due on Thursday. On Friday, data is due on the Fed’s preferred measure of price pressures; the gauge, which excludes food an energy, is forecast to be steady at an annual 1.6 percent.
The Stoxx Europe 600 Index fell 1.3 percent in New York. Futures on the S&P 500 Index dipped 0.6 percent, the lowest in more than 11 weeks. Kospi index sank 1.2 percent on the largest tumble in two weeks. The MSCI Asia Pacific Index dipped 0.7 percent. The MSCI Emerging Market Index decreased 0.4 percent, the lowest in almost 20 weeks.
The Bloomberg Dollar Spot Index gained 0.2 percent, the highest in more than five months. The euro dipped 0.1 percent to $1.1152. The British pound declined 0.1 percent to $1.2638. The onshore yuan decreased less than 0.05 percent to 6.91 per dollar.
The yield on 10-year Treasuries declined three basis points to 2.23 percent, the lowest in 20 months. The yield on two-year Treasuries fell five basis points to 2.08 percent, the lowest in more than 15 months. Germany’s 10-year yield decreased one basis point to -0.17 percent, the lowest in about three years. Japan’s 10-year yield sank two basis points to -0.09 percent, the lowest in almost three years.
West Texas Intermediate crude declined 2.2 percent to $57.83 a barrel.
Soybeans increased 3.4 percent to $8.85 a bushel on the largest climb in almost two weeks. Gold climbed 0.3 percent to $1,283.80 an ounce.