SYDNEY (Reuters) – Investors dropped stocks on Monday and fled to security for bonds, while the Japanese yen swam near a six-week high, as risk benefits fell out of favor by raising fears of a US decline and sending global dividends.
FILE PHOTO: A man reflected on an electronic card showing a graph analyzing recent change of the Nikkei index outside a brokerage in Tokyo, Japan, January 7, 2019. REUTERS / Kim Kyung-Hoon
U.S. Stock futures fell, with E-minis for S&P 500 skidding 0.5 percent. MSCI's widest index of Asia-Pacific shares outside Japan fell 1.4 percent to a week's trough in broad-based stock market equities in the region.
Japan's Nikkei tumbled 3.2 percent to the lowest in two weeks, the Korea-food index fell 1.6 percent while Australian stocks fell 1.3 percent.
Chinese stocks also dropped with the blue-chip CSI 300 index down 0.8 percent.
On Friday, all three major US stock indices managed their largest one-day percentage loss since January 3. Dow deleted 1.8 per cent, S & P 500 was 1.9 per cent and Nasdaq fell 2.5 per cent.
Concerns about the health of the world economy increased last week after cautious comments from the US Federal Reserve sent 10-year treasury dividends to the lowest since early 2018.
U.S. 10-year government bonds were the last 1.9 basis points below the three-month rate after the reversal was reversed for the first time since 2007 on Friday. Historically, a reverse yield curve – where long-term rates fall below short-term – has signaled a coming recession.
"The bond market action is a huge blaring siren for anyone trying to be optimistic about stocks," JPMorgan analysts said in a note to clients.
"Growth and bonds / yield curves will be the only thing the stocks should focus on in the future, and it is very difficult to imagine any kind of rally until financial confidence stabilizes and bonds reverse."
Compound fears of a more widespread global decline, production data from Germany showed a contraction for the third straight month. And in the US, preliminary production and service activity measures for March showed that both sectors grew at a slower pace than in February, according to data from IHS Markit.
National Australia Bank's yield curve repayment calculation points to a 30-35 percent probability of a US recession occurring over the next 10-18 months.
"The risk of a US recession has risen and flashes yellow, and this will keep market prices high chances for Fed cut rates," said British NAB strategist Tapas Strickland.
As bonds matured on Monday, the yield on 10-year Japanese government bonds increased to minus 9 basis points, the weakest since September 2016. Australian 10-year rates went to a record 1.754.
Some analysts, like ING's Rob Carnell, advised against rushing to place bets on the ROI.
"We suspect that it is not necessary to draw a decline from such data until the 3M-10Y yield curve is reversed by a significant amount," Carnell said. "Just inverted as today's market indicates, don't do it for me."
POLITICAL MAIN WINN
Much of the concern about global growth comes from Europe and China, which are fighting for special tariff wars with the United States.
The policy was also in focus in the US and the UK.
An almost two-year-old US survey found no sign of interaction between Donald Trump's election team and Russia, in a major political victory for the US president as he prepares for the 2020 re-election campaign. remains a drag on risk benefits.
On Sunday, Rupert Murdoch's Sun newspaper said on a front page editorial British prime minister Theresa May must announce on Monday that she will stand down as soon as her Brexit agreement is approved.
The British pound was a shade lower of $ 1,3198 after three straight days of wild gyrations. The currency fell 0.7 percent last week.
In the foreign exchange markets, the Japanese yen – a perceived safe haven – held close to its highest since February 11. It was last 0.1 percent higher at 109.77 per dollar.
The Australian Dollar, a risk game liquid ombudsman, was down for its third straight increase of $ 0.7076.
In commodities, US commodities fell 61 cents to $ 58.43 per barrel. Burned raw futures eased 60 cents to $ 66.43.
Editing Shri Navaratnam