Investors across the globe ditched shares on Monday and fled to the safety of bonds as risk assets fell out of favor on growing fears of a U.S. recession, sending global yields plunging.
The gloomy mood was expected to spread across Europe and U.S. markets, Spreadbetters showed, with London’s FTSE futures off 0.3 percent and E-minis for the S&P 500 skidding 0.5 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.5 percent to a one-week trough in a broad equities sell-off in the region.
Japan’s Nikkei hit a five week low after diving 3.1 percent for its largest one-day percentage fall since late December. South Korea’s Kospi index declined 1.7 percent while Australian shares faltered 1.1 percent.
Chinese shares was also in the red with the blue-chip CSI 300 index down 1.4 percent.
Concerns about the health of the world economy heightened last week after cautious remarks by the U.S. Federal Reserve sent 10-year treasury yields to the lowest since early 2018.
It would be recalled that U.S. 10-year treasury yields were last 1.9 basis points below three-month rates after yields inverted for the first time since 2007 on Friday.
Historically, an inverted yield curve – where long-term rates fall below short-term – has signaled an upcoming recession.
“The bond market price action is an enormous blaring siren to anyone trying to be optimistic on stocks,” JPMorgan analysts said in a note to clients.
“Growth, and bonds/yield curves, will be the only thing stocks should be focused on going forward and it’s very hard to envision any type of rally until economic confidence stabilizes and bonds reverse,” it added.
Compounding fears of a more widespread global downturn, manufacturing output data from Germany showed a contraction for the third straight month.
Meanwhile, in the United States, preliminary measures of manufacturing and services activity for March showed both sectors grew at a slower pace than in February 2019.