Investors piled into gold, safe-haven yen and bonds on Monday over nagging concerns about a prolonged U.S.-China trade war and global growth, while Argentina’s peso plunged 22 per cent after voters handed its president an election mauling.
The yen rose to its highest in more than a year and a half versus the U.S. dollar on the prospect the Japanese currency could gain more in the case of a drawn-out U.S.-Sino trade conflict.
Concerns that a trade deal would not be reached before the 2020 U.S. presidential election grew after Goldman Sachs on Sunday became the latest to cut its U.S. growth outlook and warn a trade stand-off would fester past the election.
U.S. stocks fell, following a decline in Europe, to push a gauge of global equity performance lower. Stocks in China rallied more than 1 per cent after the yuan avoided further drama after Chinese authorities allowed the yuan to slip below the seven-per-dollar level last week.
Stocks in the near term lack a catalyst either from company earnings, the Federal Reserve or a trade deal, said Rahul Shah, chief executive of Ideal Asset Management in New York.
“The promise of a trade deal coming this year, I think that’s becoming less and less likely,” Shah said. “That does set up the market possibly for a correction at this point,” he said.
Stocks could dip between 5 per cent to 10 per cent but prompt long-term investors to enter the market as valuations fall, he said. Half of Shah’s portfolio is corporate debt with remainder tech stocks and shares with solid dividends, he said.
MSCI’s gauge of stock performance in 47 countries fell 0.6 per cent while Wall Street also fell.
Based on the latest available data, the Dow Jones Industrial Average fell 399 points, or 1.52 per cent, to 25,888.44, the S&P 500 lost 36.39 points, or 1.25 per cent, to 2,882.26 and the Nasdaq Composite dropped 95.73 points, or 1.2 per cent, to 7,863.41.
Canada’s main stock index fell for a second day on Monday, hit by worries over recession due to a prolonged U.S.-China trade war.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 103.57 points, or 0.63 per cent, at 16,237.77.
Energy stocks fell 1.3 per cent even as oil prices recovered. Financial and materials stocks dipped 0.9 per cent and 0.6 per cent, respectively, mirroring weakness in global stock markets.
U.S. Treasury yields fell on Monday, in line with the weak stock market, as trade worries and global political tensions in places such as Hong Kong and Argentina supported safe-haven assets.
U.S. 30-year bond yields slid to their lowest since July 2016. U.S. long-term yields have fallen in six of the past nine sessions, reflecting investors’ diminished risk appetite. European bond yields were also lower on the day.
The U.S. yield curve has also flattened significantly, suggesting mounting anxiety. The yield spread between U.S. 2-year and 10-year notes, a closely watched metric, narrowed to 5.3 basis points, the smallest difference since at least 2010, according to Refinitiv data.
The bond rally was triggered by protests in Hong Kong over the weekend, which originally stemmed from opposition to a bill allowing extradition to the mainland. That crippled Hong Kong’s airport, while in Argentina the defeat of President Mauricio Macri during primary elections added to global stress.
Italy also had political problems after the League party last week filed a no-confidence motion against its own governing coalition. The party’s populist chief Matteo Salvini hopes that the motion move will trigger early elections and have him installed as the new leader.
Concern about the U.S.-China trade conflict persisted. A week ago, China allowed the yuan to break through the key 7-per-dollar level for the first time since 2008, prompting Washington to label Beijing a currency manipulator and sparking market turmoil.
Analysts also said Monday’s bond rally was exaggerated by a slew of holidays in Asia, particularly Japan, Singapore and India.
In afternoon trading, U.S. benchmark 10-year note yields fell to 1.64 per cent, from 1.734 per cent late on Friday.
Since the beginning of the year, 10-year yields have fallen more than a hundred basis points, on track for its steepest drop in eight years.
Yields on 30-year bonds slid to 2.13 per cent, from 2.247 per cent on Friday. Earlier, they fell to a more than three-year low of 2.119 per cent.
At the short end of the curve, two-year yields slipped to 1.581 per cent, from Friday’s 1.63 per cent.
“As long as there is global political tension, we’re going to get downward pressure on U.S. yields,” Stan Shipley, fixed income strategist, at Evercore ISI in New York, said.
European shares also fell, with the pan-regional FTSEurofirst 300 of leading European shares closing down 0.31 per cent, while Germany’s export-heavy DAX off 0.12 per cent.
Germany’s Ifo survey echoed the growth concerns with its measures for current conditions and economic expectations both having worsened in the third quarter.
Gold edged up, holding above the psychological $1,500 level. Spot gold added 0.6 per cent to $1,505.83 an ounce.
The yen rose to its highest against the dollar since March 2018 - barring a flash crash in January - gaining 0.32 per cent versus the greenback at 105.35 per dollar.
The euro rose 0.12 per cent to $1.1211, while the dollar index fell 0.05 per cent.
“The longer the trade war drags on, the more likely it would weigh (on) the global outlook and crimp the world economy, a negative for market morale,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
Oil prices were little changed on Monday as expectations that major producers would continue to reduce global supplies ran into worries about sluggish growth in crude demand due to the U.S.-China trade war.
International benchmark Brent crude settled at $58.57 a barrel, up 4 cents. West Texas Intermediate (WTI) futures settled at $54.93, up 43 cents.
Investors were torn between forecasts of slowing global oil demand growth and chatter about renewed efforts by major producers to curtail output and support prices, analysts said.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have agreed to cut 1.2 million barrels per day (bpd) since Jan. 1.
Kuwait was “fully committed” to the OPEC+ agreement, Oil Minister Khaled al-Fadhel said, adding that Kuwait has cut its own output by more than required by the accord.