U.S. government bonds have rallied and global stock markets have plummeted, as worries about inflation have been replaced by concerns that the global economic recovery from the coronavirus has culminated.
The yield on the 10-year Treasury bond, which moves inversely to its price, fell 0.04 percentage points to 1.276 percent. The move has put global bond yields, which are influencing lending costs for companies and households around the world, at their lowest level since early February and in the wake of the its biggest weekly drop since June 2020.
Stock markets fell sharply first in Asia before the negative mood picked up in Europe then on Wall Street, in a move analysts blamed on a sudden realization that high rates of U.S. economic growth were at their peak at the same time signs of a slowdown in China.
The Wall Street S&P 500 index fell 1.5 percent in early exchanges, while the technology-focused Nasdaq Composite also fell 1.5 percent. The Stoxx Europe 600 lost 2.3 percent after Hong Kong’s Hang Seng index ended the session 2.9 percent lower.
“We have seen a change in asset allocation with people selling risky assets across the board and including safer returns on government securities,” said Shaniel Ramjee, senior investment manager at Pictet Asset Management .
This marked a contrast from the first half of the year when investors worried about the US economy overheating. Iddi sold in Treasuries that fixed interest payments are eroded by inflation and buy stocks in companies in economically sensitive industries, such as banks and energy producers.
“Markets tend to focus only on a few things at a time,” Ramjee said. “The focus has shifted to U.S. growth accelerating less than it has been… And there is now more focus on China.”
On Wednesday, the Chinese government said it would implement it “Punctual” cuts in the banks ’reserve ratio requirements to keep the flow of money around the economy. The move sent a signal that China’s second-quarter gross domestic product data from next week “could fall below market expectations” of 8 percent expansion over the same period last year. , according to Daiwa economist Chris Scicluna.
Chinese ports and factory districts have been struggling with outbreaks of the Delta variant of coronavirus, while Japan has said so that Tokyo will be under a state of emergency at the Olympic Games to contain infections.
In minutes of their last meeting published Wednesday, Federal Reserve officials said “uncertainty surrounding the economic outlook was high.” Economists predict that U.S. GDP will grow at an annualized rate of more than 9 percent in the second quarter of this year, and to moderate thereafter.
The dollar index, which measures the green dollar against major currencies, fell 0.4 percent Thursday. Brent crude, the benchmark for oil, fell 0.3 percent to $ 73.20 a barrel.
Bonds have also gathered in Europe. Germany’s 10-year yield fell 0.03 percentage points to minus 0.323 percent, the lowest since March. The Ibex share index in Spain fell by 2.6% and Italy’s FTSE MIB lost 2.9%.
Markets were trading “on expectations that we have seen the highest growth number printed” after last year’s coronavirus arrests, said Maarten Geerdink, head of European equities at NN Investment Partners. He added that the “price action” was “now self-sufficiency”, since traders sell stocks in case they are hit harder.