Market News & Analysis

Top Story

US Stocks Plummet As Bond Market Sounds Recession Warning

US equities slumped on the open, joining the global trend, which has seen markets in Asia and Europe tumble lower. With China threatening to take the trade war a step further and the bond market sounding recession alarm bells, traders are jumping out of riskier assets.

Trade frictions between the world’s two biggest powers show no signs of easing; quite the reverse, as China plans to use rare earth exports as leverage in the trade war.
Macro data has been showing signs of strain and the full impact of the most recent US tariff hikes is yet to kick in. Citi’s global surprise index, has been negative for over a year, which doesn’t bode well. Fears over the impact of the increasingly lengthy and messy trade dispute on the global economy are sending investors in search of safe havens.

Whilst riskier assets such as equities are rapidly being dumped, flows into the Japanese yen, gold and US bonds are all on the increase.


Fixed income market recession warning
As the US 10-year treasuries rally, the yield declines, so much so that it has inverted, falling below the yield curve of the 3-month treasury. This is the second time this year that the 10 year and 3-month yield curves have inverted. Historically, an inversion is considered a warning signal for a recession. The bond market last sounded this alarm back in 2007. 
Investors will now look ahead to a raft of US data on Thursday and Friday to asses the health of the US economy. 

Up Next:
US GDP Q1 revision is the key data point tomorrow
 PCE inflation could drive trading on Friday.

S&P levels of interest
On the 4-hour chart the S&P has dropped through its 200 sma. It now trades below its 50, 100 and 200 sma; a bearish bias. After crashing through support at 2800, the door has been opened to 2765. A meaningful move through here could see 2720 and 2680 tested. On the upside resistance can be seen a 2800 prior to 2850.



Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.