* 10-yr Treasury yields drop under 2-yr first time in 12
years
* Investors fear inversion heralds recession, hope for Fed
rescue
* Asia shares slip as Dow loses 800 points in worst day of
* Oil extends big overnight drop on demand, supply pressures
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Tomo Uetake and Wayne Cole
TOKYO/SYDNEY, Aug 15 (Reuters) - Asian stocks stumbled and
oil prices extended a punishing sell-off on Thursday as
investors feared an historic drop in long-term U.S. bond yields
could portend a recession globally.
Spooked investors stampeded to the safety of sovereign debt
and drove yields on 30-year Treasuries US30YT=RR to all-time
lows at 1.965%. Yields have now fallen a staggering 60 basis
points in just 12 sessions to pay less than three-month debt.
Yields on 10-year paper US10YT=RR dropped to 1.545%,
taking them under two-year paper. Such an inversion was last
seen in 2007 and correctly foretold the great recession that
followed a year later. US/
"The yield curves are all 'crying timber' that a recession
is almost a reality and investors are tripping over themselves
to get out of the way as economic recession hurts corporate
earnings and stocks can drop as much as 20%," said Chris Rupkey,
chief financial economist at MUFG Union Bank.
The only saving grace was that the sheer scale of the scare
would be bound to alarm central banks everywhere and likely draw
a policy response, especially from the Federal Reserve.
The futures market was clearly expecting drastic action as
it priced in a greater chance the Fed would have to cut rates by
half a point at its September meeting. FEDWATCH
"Hoping for the best on the policy front but positioning for
the worst on the economic backdrop seems to be the flavour of
the day," said Stephen Innes, a managing partner at Valour
Markets.
"The Fed, now out of necessity alone, will need to adjust
policy much more profoundly than they expected."
That hope helped E-Mini futures for the S&P 500 ESc1 nudge
0.5% higher in late Asian trade, while the EUROSTOXX 50 STXEc1
was last traded up 0.3%, suggesting a modestly higher open for
European stocks.
Kozo Koide, Asset Management One's chief economist,
dismissed the possibility of an inter-meeting move by the
Federal Reserve before the scheduled September review under the
current situation.
"I doubt if this is a good signal of a recession. Obviously
some program trades were set off when the inversion occurred,
and caused the markets to tremble. Although I expect a September
cut, the situation is still far from a crisis."
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS dropped 0.7% and briefly touched a seven-month
Japan's Nikkei average .N225 was off 1.3%, while China's
benchmark Shanghai Composite .SSEC lost 0.4% and Hong Kong's
Hang Seng .HSI stood flat on the day.
A SELF-FULFILLING CYCLE
All three of the major U.S. stock indexes tumbled about 3%
overnight, with the blue-chip Dow .DJI posting its biggest
one-day point drop since October. .N
Global growth woes have mounted as the Sino-U.S. trade war
claimed ever more victims, with the German economy contracting
in the June quarter and a truly dire set of activity data for
July out of China. President Donald Trump on Wednesday seemed to tie a U.S.
trade deal with China to a humane resolution of the weeks of
protests wracking Hong Kong. A top Australian central banker on Thursday warned a world
downturn could become "self-fulfilling" if the uncertainty over
trade led businesses to put off investment indefinitely.
The threat to global demand took a heavy toll on oil prices,
with Brent crude LCOc1 losing another 0.6% to $59.12 a barrel,
after shedding 3% overnight. U.S. crude CLc1 was last down
0.4% at $55.03. O/R
Safe-haven gold gained 0.3% to $1,521.00 per ounce XAU= ,
not far from its highest since April 2013.
Major currencies were relatively calm, with the yen gaining
just a little from its status as a safe harbour. The dollar was
last at 105.91 yen JPY= having fallen 0.8% overnight form a
top of 106.77.
The dollar index .DXY was a shade easier at 97.925, with
the euro bearing its own burdens at $1.1149 EUR= following
Wednesday's soft German data.
U.S. yield curve inversion Aug. 14 2019 Image https://tmsnrt.rs/2YQ1VhR
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