Trade tensions between Washington and Beijing still alive, Chinese and European growth marking the step: worried about the slowdown in the global economy, investors abandoned Wednesday the stock market in favor of securities considered safer, such as gold and silver. government bonds.
Faced with the proliferation of warning signs of recession, market players are showing more and more their dislike of the stock market, considered more risky.
This has heavily dropped Wall Street: its flagship index, the Dow Jones Industrial Average, cashed its heaviest loss of the year by falling 3.05% to 25,479.42 points.
The Nasdaq, with strong technological coloration, yielded 3.02% to 7,773.94 points and the broad index S & P 500 dropped 2.93% to 2,840.60 points.
European stock markets were also affected by the climate of concern over the global economy: the CAC 40 lost 2.08% in Paris, the Dax fell 2.19% in Frankfurt and the FTSE 100 fell 1, 32% in London.
The appetite of investors has been focused on other safe havens such as gold, which surged. The ounce ended Wednesday at its highest level since 2013, at 1516.44 dollars.
US Treasuries, generally less subject to economic vagaries, also attracted.
The yield on US bonds, which declines as their price rises, has plummeted.
– Inversion of the yield curve –
Before the opening of Wall Street, the interest rate on 10-year US Treasury bills has temporarily fallen below that of two-year bills, for the first time since 2007, an ominous sign for global growth. The reversal of the yield curve was only of short duration, but it was very noticed, weighing heavily on the equity markets.
This phenomenon is indeed feared by investors as a historically forerunner of recession.
It means investors believe that a contraction of the economy is looming in the next 12 to 18 months and that the Fed will have to intervene to lower interest rates.
Investors were all the more scared Wednesday as the Gross Domestic Product (GDP) in Germany fell in the second quarter and the growth of Chinese industrial production weakened, dropping to a 17-year low in July.
“If this reversal (of the yield curve) is confirmed, it would mean that the stock market would suffer even more because of uncertainties, and that there would be a rush of assets considered to be safer”, such as bonds, underlined Peter Cardillo of Spartan Capital Securities.
“I think a recession is more and more likely,” Mark Zandi, chief economist for Moody’s Analytics, said earlier this week. “The risks of a recession between now and the end of 2020 are a little over 50% if the president (Trump) puts his threats on tariffs into effect,” he added.
The US administration announced Tuesday postponing to mid-December the application of additional tariffs on certain products made in China, initially scheduled for September 1.
A recent Bank of America economists note also pointed to an increased risk of recession, now seen as likely at 33% instead of 20% previously.
Oil prices also tumbled on Wednesday, as continuing trade tensions threaten global demand for black gold.