Shares fall steeply in Asia as financial markets rocked by recession warnings – business live

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One factor in the pickup in Asian shares could be a reassessment of the risks of the celebrated inverted bond yield curve.

Several analysts and experts, including former Federal Reserve bosses Alan Greenspan and Janet Yellen, have pointed out that structural market change means that the inverted yield curve might not be as important or reliable as it once was.

Kerry Craig, a global markets strategist at JP Morgan Asset Management, told Reuters that investors should also take note of how significantly markets had changed in the last decade, which meant a yield curve inversion might not be the harbinger it once was.

Yield curve inversion is flashing a warning sign – investors should check their portfolios are resilient. But it’s not a reason to panic or to lean into the sell-off.

David Bassanese of Betashares in Sydney points out that:

Current yield curve inversion is unusual compared to history as it’s not associated with a high real Fed funds rate (average of past 5 recession episodes 3.2%). Currently the real rate is around zero. That either means the curve is providing a false signal (due to a structural flattening) or the “neutral” real Fed funds rate has fallen a lot and even a near-zero level (as at present) is restricting the economy. The latter is clearly US President Trump’s claim. My view is that the yield curve is structurally flatter and not providing a signal of recession.. as confirmed by still positive indicators such as US jobless claims.

And Stephen Koukoulas, the independent Australian economist, thinks it’s all a bit of “blabber” that a sharp cut in interest rates won’t fix. As he observes, that puts him in the same camp as Trump.

enltrTrump is right on the Fed: The Fed needs to cut to 0.5% (or less) & do it soon - the boost to the economy will be material.
The blabber on the yield curve fails to note that aggressive Fed cuts will fix the issue. It's not like the issue has crept up on them

Stephen Koukoulas (@TheKouk)

enltrInverted yield curves are merely a reflection of bond market vigilantes pricing in a policy error of the central bank - nothing more or less.
The central bank can address the concerns but cutting interest rates like freaks
Simple

Stephen Koukoulas (@TheKouk)

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Hong Kong is back in the black

The Hang Seng index has climbed into positive territory. It is now up 0.5% at 25,430 points. Losses on the Shanghai Composite are just -o.5%. What a time to be alive.

enltrHang Seng market red to green.

This is some good news & yet see no headlines or alerts #invertedpic.twitter.com/vomjqpf7nQ

Christian Fromhertz (@cfromhertz)

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Analysts at UBS in Sydney have given up on a near-term resolution of the US-China trade war and have downgraded their forecasts for the two big economies. It also means a downgrade for industrial commodities such as iron ore and coal, and a boost for gold.

Here they are:

Our investment thesis heading into the back half of 2019 was predicated on a resolution to the trade war, but unfortunately this appears to have been short lived. As a result of increased tariffs, albeit somewhat delayed, this has lead to our economists downgrading US and Chinese growth for H2 19 and 2020. In light of this we have downgraded our industrial commodity forecasts and lifted gold.

On the bright side (if that’s the way you see it), the weakness makes another round of Chinese stimulus more likely. It’s the old “bad news is good news” paradigm, folks:

Continuing trade tensions are a headwind to global growth, but could prove positive for China stimulus.

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House prices rose 0.6% in China last month, the 51st consecutive month of gains, according to Reuters calculations based on national bureau of statistics (NBS) data released today.

The gains are good news for the Chinese economy after some terrible data yesterday which showed industrial production falling to a 17-year low.

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Despite all the gloom, the markets are beginning to recover some ground. The Nikkei is now off just 1.3% compared with 2% earlier, and the Hang Seng is in the red by just 0.45% after hitting -1.4% earlier. Shanghai is still on -1%.

In line with that improvement the FTSE100 and the Dow Jones are both seen opening in the black later today, according to IG Markets futures trading.

Australia is looking more off colour, however, with the ASX200 in Sydney slipping -2.28% to 6,445 points. It wasn’t long ago that it reached an all-time high of 6,875 points.

The ASX has dropped sharply on Thursday. Photograph: Steven Saphore/EPA

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Australia at risk from global turmoil, bank deputy says

Guy Debelle, the deputy governor of the Reserve Bank of Australia, has given a speech this morning about what the global turmoil means for Australia and, not surprisingly, it’s not good news.

Reserve Bank of Australia deputy governor Guy Debelle. Photograph: David Moir/AAP

Speaking at a risk conference in Sydney, he said Australia – which has not had a recession for 28 years – benefited greatly from the “rules-based global order”. But the threats to that from the US-China trade war were bad news for the economy.

There were risks for household consumption but signs that house price falls were levelling out provided more optimism.

If this is the case, the drag from declining wealth and turnover will dissipate. Housing market conditions may even start to support consumption growth again in the period ahead.

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US 30-year bond yields sink below 2% for first time

It’s all happening now!

The yield on 30-year US treasury bonds has slumped below 2% for the first time this morning. The 30-year yield extended its sharp overnight slide and hit a record low 1.991% in Asian trade on Thursday.

enltr30-year US Treasury yield dips below 2% for the first time ever. https://t.co/S2qS6gFMbhpic.twitter.com/T9CN1dadwz

Tracy Alloway (@tracyalloway)

Concerns about the global economy is driving investors into the relative safe haven of government bonds. That drives up the price of bonds but reduces the yield.

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Shanghai Composite down 1.3%

Trading has started in mainland China as well and the Shanghai Composite is off 1.1%, easing earlier losses.

It follows the decision by the People’s Bank of China to set the yuan slightly higher this morning. It also announced that it was lending 400bn yuan ($56.90bn) to financial institutions via its one-year medium-term lending facility, with an unchanged interest rate at 3.3%. It rolls over a bunch of loans worth 383bn yuan and adds more cash, Reuters reports.

The bank also injected a net 30bn yuan into money markets on Thursday.

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Australian unemployment stays at 5.2%, Aussie dollar spikes

Unemployment stayed at 5.2% in July, according to seasonally adjusted figures from the Australian Bureau of Statistics released a few minutes ago. But the market was cheered by stats that showed 41,000 jobs were created last month against a forecast of 14,000.

The Aussie dollar picked up 0.4% to US67.75c.

enltr https://t.co/e0cl5ktHIh AUD/USD jumps 30 pips on the upbeat Australian jobs report

— FxBook (@FxBookLTTG)

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Hong Kong opens down 1.4%

The Hang Seng index has opened down 1.4% this morning. That’s a fall of 365 points today and it takes the index below 25,000 to 24,945.

The Hang Seng been battered by concerns about the growing political crisis in the city – the deepening fears about a slowdown in the Chinese economy won’t help.

Help is at hand though. Donald Trump is offering a trade deal to Xi Jinping if he can sort the mess in Hong Kong “humanely”.

Related: Trump warns 'good man' Xi to treat Hong Kong humanely or risk trade deal

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China sets yuan slightly higher

China’s central bank has set the yuan higher this morning at 7.0268 against the US dollar, compared with 7.0312 the day before.

In other words, Beijing is willing to see the yuan strengthen a little. (The lower the number, the stronger it is against the greenback). In the grand scheme of things that will be seen as a small olive branch to Washington, which last week accused Beijing of wanting to manipulate the yuan downwards and force cheaper goods on the world.

enltr #PBOC raised #Yuan 's fixing by 44 pips to 7.0268 per USD, vs 7.0312 one day earlier.

— YUAN TALKS (@YuanTalks)

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The losses seem to be easing in Japan, where the Nikkei is now down 1.76% for the day. But Australia’s ASX200 is now off a hefty 2.1%, not helped by a bad result for the telco Telstra.

It has reported a 40% fall in profits this morning thanks to the mounting cost of rolling out the country’s national broadband network, or NBN. Its shares are down nearly 2% and, as one of the biggest companies on the market, that makes a difference.

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Oil continues to fall

The cocktail of economic news and data has been bad for the price of oil. Brent crude is down 39 cents, or 0.7%, at $59.09 a barrel this morning, after falling 3% in the last session.

US crude was down 28 cents, or 0.5%, at $54.95 a barrel, having dropped 3.3% in the previous session.

The falls have increased expectations that Saudi Arabi and other Opec oil-producing nations will cut production to force prices back up. That’s bad for their national coffers though and the Saudis, who are fighting a war in Yemen, have been reluctant to cut.

enltrCrude oil prices getting closer to recent support levels...but companies that either produce it or provide related services appear to be discounting in 2016 lows based on current valuations ?? pic.twitter.com/Qs9UgLoFPh

Lava Creek Capital Management, LLC (@LavaCreekVOS)

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Michael McCarthy, chief market strategist at CMC Markets in Sydney, notes that although the bond market was the trigger for the trauma on stock markets in the past 24 hours, not every inversion in the US curve has led to a recession. But he says that might not be enough to prevent a rush for the exits amid a delicate geopolitical position:

Markets were in no mood for subtlety, and the damaging moves may provide their own rationale for more selling. The sell-off comes despite a better than forecast US earnings season. More than 90% of SPX500 companies have reported. Aggregate earnings are up around 2%, beating forecasts of a negative quarter.

He also said poor earnings result in Australia, especially from the telco giant Telstra, would keep the pressure on stocks down under:

Australian company results could add to market pressures. Telstra reported a 40% drop in profit, worse than forecast. Optimistic messages around the introduction of the 5G spectrum may not be enough to stem investor displeasure. Other misses include Blackmore’s, Cleanaway, Treasury Wine Estates and Super Retail. Both Sydney Airports and QBE Insurance delivered earnings above expectations, and funeral group Invocare surprised with a 7.5% lift.

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So what is an inverted bond yield curve?

A major factor in yesterday’s selloff was the inverted US bond yield curve – not helped by recession warnings from Germany and China. It is a very reliable predictor of recession and preceded all six of the previous US recessions.

It’s not often it becomes a topic for everyday conversation. So in case you get stuck next to the water cooler and feel like making some small talk, here’s a quick explainer.

In normal times, investors would expect a higher return, or yield, for buying longer-term government bonds. Conversely, the shorter-term bonds, such as two-year bonds, give you less return.

But as you can see in the theoretical chart below, the normal curve turns the other way, or inverts, when the yield on longer-term notes falls in relation to shorter-term. It indicates that investors see trouble ahead...

A graph showing inverted and normal bond yields. Photograph: Osborne Partners

It looks more like this in the real world:

enltrBut I am skeptical of this chart showing banks tightening loan standards when the yield curve inverting. Did banks tighten because of upside down interest rates or because they saw the same things bond traders saw that inverted the curve? pic.twitter.com/CIkS171rIr

John Carney (@carney)

You can go for the PhD level with this column from our economics editor, Larry Elliott:

Related: Inverted curve proves White House has won its battle with the Fed

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In Japan the Nikkei index is down 2.1% this morning. Stocks are suffering amid the fears of a global downturn but are also being pushed down because the value of the yen is rising. The Japanese currency is a “safe haven” asset and goes up in times of crisis – rather like gold and the Swiss franc which are both also up today.

A higher yen is bad news for Japan’s export-reliant big manugfacturers, hence the falling stock market.

Here’s Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo:

When volatility rises, dollar/yen becomes strongly correlated with [US] treasury yields, so the currency pair has more room to fall. I expect other safe havens to rise. The mood is downbeat, because of the trade war and bad economic data.

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'Turbulence will continue,' Australian stock market boss says

Market turbulence will continue over coming months, the chief executive of the Australian Stock Exchange says.

As the benchmark ASX200 took a 2% hit in early trading this morning, the ASX chief executive, Dominic Stevens, said the 2020 financial year would see “elevated volatility” because of the geopolitical situation and the changing expectations for interest rates.

My colleague Ben Butler writes that with rates at record lows the market expects further cuts in coming months as the Reserve Bank tries to boost Australia’s sluggish economic growth.

But while markets around the world may be melting down, it’s been a good year for the ASX. It said this morning that profits after tax had risen 10.5% in the year to 30 June, to $492m. Shareholders in the market operator will reap the benefits, trousering dividends for the year totalling 228.7c a share – up 5.7% on last year’s payout – plus a special dividend of 129.1c a share from the sale of ASX’s stake in technology company Iress.

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Australia opens down 1.8%, Japan off 1.9%

Trading has started in Asia with steep falls – as expected – in Australia and Japan.

enltrAsia begins lower after the sell-off on Wall St. where US indices fell around 3% and the DJIA posted its worst performance YTD amid recession fears after weak data from China and Germany, as well as the US yield curve inversion; ASX 200 (-1.2%), Nikkei 225 (-1.9%), KOSPI (closed)

— RANsquawk (@RANsquawk)

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Good morning/evening... wherever you are in the world, welcome to the Guardian’s business live blog which is starting early today before what’s expected to be a turbulent day on the financial markets.

My colleague Graeme Wearden covered all the action in the UK, Europe and the US on Wednesday and you can catch up on his blog here.

But in the meantime here are the main points:

  • Wall Street suffered huge losses after an inversion in the US bond yield curve sparked fears of an imminent recession.
  • The Dow Jones plunged 800 points, or 3%, its fourth largest decline in history. The S&P500 and Nasdaq were also down heavily.
  • Fears were compounded by GDP figures in Germany pointing to a recession there and data in China showing industrial production was down 17% in July.
  • The numbers sent European markets down, with the FTSE100 off more than 100 points.
  • Oil slumped on fears of a global downturn.
  • Donald Trump lashed out at the Fed chairman, Jerome Powell, calling him “clueless”.

Here’s our news wrap of yesterday – and I’ll have today’s opening scores in a few minutes when trading starts in Sydney.

Related: Markets spiral downwards on fears of German recession

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