(Updates to midday U.S. trading.)
By David Randall
NEW YORK, Aug 7 (Reuters) - Investors rushed into the safety
of U.S. government bonds on Wednesday, smothering a broad stocks
rally as fears of a global recession grew.
Yields on the benchmark 10-year Treasury note US10YT=RR
fell to their lowest levels since October, 2016, and gold soared
to a six-year high, while riskier assets like stocks and oil
prices dived.
On Wall Street, the Dow Jones Industrial Average .DJI
opened more than 500 points lower, helping erase gains in
European shares, before paring some losses.
MSCI's gauge of stocks across the globe .MIWD00000PUS shed
0.52%.
"Bonds are being bought in a panic mode," said Andrew
Brenner, managing director at National Alliance Capital Markets.
The Dow Jones Industrial Average .DJI fell 353.42 points,
or 1.36%, to 25,676.1, the S&P 500 .SPX lost 32.87 points, or
1.14%, to 2,848.9 and the Nasdaq Composite .IXIC dropped 68.83
points, or 0.88%, to 7,764.44. .N
The pan-European STOXX 600 index .STOXX rose 0.24%. .EU
U.S. shares had gained overnight after President Donald
Trump downplayed worries of a lengthy trade war and senior
adviser Larry Kudlow said Trump's administration was planning to
host a Chinese delegation for talks in September Street futures gauges also rose.
The U.S. administration's remarks marked a shift in tone
from recent days, when Beijing warned that Washington's labeling
China as a currency manipulator would have severe consequences
for the global financial order. The U.S. move rattled financial
markets and dimmed hopes the trade war was ending.
Since then, China's state banks have been active in the
onshore yuan forwards market, tightening dollar supply and
supporting the Chinese currency, sources told
Reuters. Despite that support, the yuan still dropped 0.2% to 7.0708
in offshore markets CNH=EBS , with currency markets still on
edge after the People's Bank of China (PBOC) set its official
reference rate at an 11-year low.
"We had a little bit of recovery yesterday, but this morning
we are seeing that stalling due to the PBOC fixing the
dollar-yen higher again," said Thu Lan Nguyen, FX strategist at
Commerzbank.
The skittish mood was underlined by continuing demand for
currencies and commodities considered safe havens.
Gold touched a six-year high of $1,489.76 per ounce XAU= .
The Japanese yen rose 0.2% to 106.26 JPY=EBS , although that
was still some way from levels on Monday, when the trade war's
escalation panicked investors.
The rush to the yen was also fueled by a 2% slump in the New
Zealand dollar after its central bank made an aggressive
interest rate cut and said negative rates were possible,
promoting bets on further policy easing around the world.
Central banks, looking to rev up growth and fight low
inflation rates, have turned increasingly dovish in recent
months.
Ten-year Treasury notes yielded 1.62% percent US10YT=RR ,
their lowest since 2016, as investors bet on another Federal
Reserve rate cut in September. Germany's 10-year bond yield fell to record lows deep in
negative territory as the bigger-than-expected Kiwi interest
rate cut and weak German economic data fueled the rally in bond
markets. German industrial output fell more than expected in June,
adding to signs that Europe's biggest economy contracted in the
second quarter as its exporters were caught up in trade
disputes. In commodity markets, oil prices slipped to near seven-month
lows, with the potential for damage to the global economy and
dampened demand from the Sino-U.S. trade dispute casting a
shadow over the market. International benchmark Brent crude futures LCOc1 fell
3.2% to $57.03 a barrel, while U.S. crude dropped 3.7% to
$51.65.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Global assets in 2019 http://tmsnrt.rs/2jvdmXl
Global currencies vs. dollar http://tmsnrt.rs/2egbfVh
Emerging markets in 2019 http://tmsnrt.rs/2ihRugV
MSCI All Country Wolrd Index Market Cap http://tmsnrt.rs/2EmTD6j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>