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GLOBAL MARKETS-Asia stocks paralysed, bonds electrified by recession risk

Published 2019-08-07, 08:37 p/m
© Reuters.  GLOBAL MARKETS-Asia stocks paralysed, bonds electrified by recession risk
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* Asian stock markets : https://tmsnrt.rs/2zpUAr4

* Asia ex-Japan index flat after Wall St recoups losses

* Recession talk fuels rush to bonds, curve inverts further

* Gold breaks $1,500 for first time in over 6 years

* Oil tries to bounce on rumours of Saudi action on supply

By Wayne Cole

SYDNEY, Aug 8 (Reuters) - Asian shares braced for more volatility on Thursday as eye-catching easings by central banks stoked fears of global recession, driving U.S. yields to near-record lows and lifting gold past $1,500 for the first time since 2013.

Spot gold XAU= was last at $1,503.56 per ounce, having been as far as $1,510. The precious metal has surged 16% since May as the worsening Sino-U.S. trade dispute sparked a rush to safe havens. GOL/

"Financial markets are raising risks of recession," said JPMorgan (NYSE:JPM) economist Joseph Lupton.

"Equities continue to slide and volatility has spiked, but the alarm bell is loudest in rates markets, where the yield curve inverted the most since just before the start of the financial crisis."

Early Thursday, Asian share markets were wobbly, as investors tried to find their footing after enduring a string of heavy losses. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.03%, having shed 8% in less than two weeks.

Japan's Nikkei .N225 inched up 0.1%, and away from seven-month lows. E-Mini futures for the S&P 500 ESc1 lost 0.13%.

There was much relief that Wall Street had managed a late come back overnight, so that the Dow .DJI ended with a loss of just 0.09% having been down 500 points at one stage. The S&P 500 .SPX tacked on 0.08% and the Nasdaq .IXIC 0.38%.

Stocks had initially been pressured by the flight to bonds. Yields on U.S. 30-year bonds US30YT=RR dived as deep as 2.123%, not far from an all-time low of 2.089% set in 2016.

Ten-year yields US10YT=RR dropped further below three-month rates, an inversion that has reliably predicted recessions in the past. US/

The latest spasm began when central banks in New Zealand, India and Thailand surprised markets with aggressive easings, while the Philippines is expected to cut later Thursday. TO THE RESCUE?

"The decision by these APAC central banks to "go hard and early" has provided further fuel to concerns of a global recession," said Rodrigo Catril, a senior FX strategist at National Australia Bank. "This also means that the Fed will need to come to the rescue."

Chicago Fed President Charles Evans signalled on Wednesday he was open to lowering rates to bolster inflation and to counter risks to economic growth from trade tensions. 0#FF: moved to price in a 100% probability of an Fed easing in September and a near 30% chance of a half-point cut. Some 75 basis points of easing is implied by January, with rates ultimately reaching 1%. FEDWATCH data on German industrial output stoked concerns Europe might already be in recession and pushed bund yields deeper into negative territory. of which fuelled speculation that the major central banks would also have to take drastic action, if only to prevent an export-crimping rise in their currencies.

The Bank of Japan would be under particular pressure as its yen has gained sharply from the flood to safe havens, leaving it at 106.10 per dollar JPY= from 109.30 just a week ago.

The euro has also bounced to $1.1217 EUR= , from a two-year trough of $1.1025, while the U.S. dollar index has backtracked to 97.595, from a recent peak of 98.932.

New Zealand's dollar was still picking up the pieces after sliding as much as 2.6% on Wednesday when the country's central bank slashed rates by a steep 50 basis points and flagged the risk of negative rates. kiwi was huddled at $0.6447 NZD=D3 having shed 1.3% for the week so far.

Oil prices were attempting a recovery as talk that Saudi Arabia was mulling options to halt crude's descent helped offset a build in stockpiles and fears of slowing demand. O/R

Brent crude LCOc1 futures climbed $1.20 to $57.43, though that followed steep losses on Wednesday, while U.S. crude CLc1 rose $1.23 to $52.32 a barrel.

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https://tmsnrt.rs/2zpUAr4 Asia-Pacific valuations

https://tmsnrt.rs/2Dr2BQA

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