Dow Jones falls 800 points, 3 per cent, after bond market sends US recession warning


Updated

August 15, 2019 06:58:14

The Australian share market is set to tumble this morning after Wall Street suffered its worst trading day of 2019 due to a warning sign for a possible US recession.

Key points:

  • The interest rate on long-term US Treasury bonds has dropped below the short-term rate in a phenomenon called the inverted yield curve
  • The last time this happened was shortly before the GFC
  • In response, ASX futures have plummeted by 124 points

The Dow Jones index plunged by 800 points to 25,479, or 3 per cent, led by a sell-off in major banks like JP Morgan, Citigroup and Bank of America.

The benchmark S&P 500 and tech-heavy Nasdaq indices also fell off a cliff, dropping 3 per cent each.

Likewise, it was a sea of red on European markets with London’s FTSE down almost 1.5 per cent.

In response, ASX futures have plummeted by 124 points.

Investors overseas fled from the stock market due to bond markets pointing to a possible US recession.

The warning came from a phenomenon called the inverted yield curve, which has happened only five times since 1978 and has been the precursor for economic recessions 22 months later, on average, according to research from Credit Suisse.

For the first time in more than a decade, America’s long-term interest rates — on its 10-year Treasury bonds — fell below 1.57 per cent, which is the short-term rate, from its two-year bonds.

The last time this happened was shortly before the global financial crisis more than 10 years ago.

The Australian dollar, meanwhile, has fallen sharply against major currencies, buying 67.47 US cents.

Amid the market carnage, the price of spot gold has jumped to $US1,514 an ounce.

Brent crude oil has plunged to $US59.3 a barrel.

Topics:

stockmarket,

business-economics-and-finance,

markets,

currency,

united-states

First posted

August 15, 2019 06:38:54



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