A flight to safe-haven assets pushed U.S. Treasury yields to their lowest since September 2017 on Monday, while gold prices jumped more than 1 per cent.
A gloomy economic outlook is prompting traders to increase bets that the U.S. Federal Reserve will cut interest rates sooner rather than later. Markets appeared to price in higher chances of recession and rate cuts by the Fed and other central banks.
Investors have also been seeking protection from market volatility as trade conflicts between the United States and its trading partners have deepened.
Yields on U.S. two-year notes were on track for their biggest two-day fall since 2008, and U.S. benchmark 10-year Treasury yields earlier hit 2.071 per cent, their lowest since September 2017. German government bond yields fell to an all-time low.
“What the bond market is telling us is that all of these pressures put together create a likely economic slowdown which is pushing yields down,” said Eric Kuby, chief investment officer, North Star Investment Management Corp in Chicago.
Treasury yields briefly extended their decline following remarks from St. Louis Federal Reserve President James Bullard who said a U.S. rate cut may be “warranted soon” because of global trade tensions and weak U.S. inflation.
In addition to increasing tariffs on Chinese imports in recent weeks, the White House has hardened its stance toward other countries, including Mexico.
Factory activity slowed in the United States, Europe and Asia last month, while the escalating trade war between Washington and Beijing raised fears of a global economic downturn and heaped pressure on policymakers to step up support.
The U.S. dollar fell to a 4-1/2-month low earlier against the Japanese yen and a two-month low against the Swiss franc.
The dollar index fell 0.54 per cent, while the Japanese yen strengthened 0.37 per cent versus the greenback at 108.13 per dollar.
Nonetheless, an index of global stocks mostly edged higher on Monday after a volatile May that wiped $3 trillion off global equities.
Canada’s main stock index slipped slightly on Monday, as energy stocks dropped with oil prices.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 21.60 points, or 0.13 per cent, at 16,016.89.
The materials sector, which includes precious and base metals miners, gained 3 per cent as gold prices rose to their highest in more than two months.
The energy sector reserved course and sat 1.4 per cent lower after oil prices retreated.
Hurting sentiment, though, was data that showed the downturn in Canada’s manufacturing sector deepened in May as the depressed state of global trade led to a further decline in production.
On Wall Street on Monday, the three major U.S. stock indexes declined on Monday and Nasdaq confirmed it was in a correction, dragged down by Alphabet, Facebook and Amazon.com on fears the companies are the targets of U.S. government antitrust regulators.
The Dow Jones Industrial Average rose 4.74 points, or 0.02 per cent, to 24,819.78, the S&P 500 lost 7.74 points, or 0.28 per cent, to 2,744.32 and the Nasdaq Composite dropped 120.13 points, or 1.61 per cent, to 7,333.02.
“The concerns that the government is going to get involved and possibly break these companies up or impose fines on their operations is a major concern here,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York.
The pan-European STOXX 600 index rose 0.39 per cent and MSCI’s gauge of stocks across the globe gained 0.28 per cent.
In commodities, spot gold added 1.4 per cent to $1,323.60 an ounce.
Oil fell on Monday as U.S. trade disputes with Mexico and China deepened concerns about weakening global crude demand, while a slump in equities also weighed on crude futures.
Brent crude futures settled at $61.28 a barrel, losing 71 cents, or 1.2 per cent. U.S. West Texas Intermediate (WTI) crude ended 25 cents, or 0.5 per cent, lower at $53.25 a barrel.
Mexico said it would reject a U.S. idea to take in Central American asylum seekers if it is raised at talks this week with U.S. President Donald Trump’s administration, which is threatening the tariffs over immigration concerns.
The possibility of tariffs on Mexico comes on top of a drawn-out trade war between the United States and China that has bruised oil prices.
“Focus has shifted from the supply to the demand side as a U.S.-China trade agreement has proven elusive and as worries over the debilitating effects of tariffs on global economic growth have now shifted to Mexico,” Jim Ritterbusch of Ritterbusch and Associates said in a note.
A downturn on Wall Street, which crude prices sometimes follow, worsened losses in oil futures, analysts said.
Comments from Saudi Arabia, OPEC’s de facto leader, indicating that the Organization of the Petroleum Exporting Countries and its allies would continue working towards oil market stability in the second half of the year, helped limit Monday’s loses.