With no sign Sino-U.S. trade tensions will let up and fears of an Italy-European Union confrontation growing again, the global bond rally accelerated on Wednesday, as investors dumped shares and scurried for the safety of German and U.S. government debt.
German yields fell deeper into negative territory and inched toward record lows around minus 0.2%. Ten-year U.S. Treasury bond yields reached 20-month lows, having fallen almost 30 basis points this month.
Wall Street was set to open lower, with S&P500 futures down half a percent after a weak close on Tuesday, following U.S. President Donald Trump’s comment that he was “not yet ready” to make a deal with China over trade.
Chinese newspapers responded on Wednesday with a warning Beijing could use rare earths to strike back at the United States.
The prospect of a prolonged standoff between the world’s two biggest economies and the likelihood of Europe and Japan getting dragged in are making investors seriously worried about global growth.
Recent economic data, such as purchasing-manager surveys, have disappointed — U.S. manufacturing growth dropped to 10-year lows.
Another round of tariffs would sharply raise U.S. recession risk, said Justin Onuekwusi, a fund manager at Legal & General Investment Management.
“The market is simply calculating what the impact will be of the next set of tariffs as it doesn’t look like the rhetoric is calming down,” Onuekwusi said.
“Then we have a weaker growth outlook … so we have the negative shock of trade added to lower growth and the cushion of protection isn’t as good as it was eight to nine months ago.”
Those concerns pushed MSCI’s global equity index 0.4% lower to a 2 1/2-month low following losses across Asia
European shares opened lower, with Germany’s exporter-heavy index down 1% and a pan-European share benchmark losing 1.3%.
On the political front, the news was gloomy, too. Eurosceptic parties gained in recent EU elections, Austria and Greece face elections and Italy’s dispute with the European Commission over its budget may be escalating.
