Asia stocks choppy as trade war fears dominate markets

Container ships are docked as shipping containers sit in the Dongbu Pusan Container Terminal Co terminal at the Port of Busan

Container ships are docked as shipping containers sit in the Dongbu Pusan Container Terminal Co terminal at the Port of Busan

That is just short of the 2-year Treasury bond yield; the first time since 2007.

"I see a glaring contradiction in the fact that so many market participants and commentators emphasise the heightened level of economic uncertainty, and at the same time seem to consider flat or inverted yield curves as fool proof predictors of a recession", she said".

More specifically, Mark Haefele, global chief investment officer at UBS Wealth Management, pointed out in a research report on Wednesday that treasury yields were weighed down by the nearly 16 trillion dollars in sovereign bonds globally with a negative yield, distorting their signal about US economic activity. In its latest projection, the US investment bank lowered its fourth-quarter growth forecast by 0.2 percentage points to 1.8 percent. Earlier in the week, the 10-year yield dropped below the 2-year yield. The Straits Times Index (STI) recorded a two per cent drop at the open, though it pared early losses to finish at 3,126.09, down 21.51 points or 0.7 per cent.

China's Shanghai Composite Index, meanwhile, was down 0.6% after paring earlier losses.

Markets appear to be pinning their hopes, yet again, on central banks, betting that scale of the scare would alarm policymakers, especially at the Fed.

Addressing to a horrendous set of Wednesday (August 14th) data dragging global markets downwards, chief executive of Horizon Investment Services in Hammond, Indiana, Chuck Carlson said, "It was all negative and not much positive today". -China trade animosity, simmering geopolitical tensions and signals from the bond market that sparked fears of impending recession.

The 10-year Treasury bond yield fell below 1.6% Wednesday, dropping just below the yield of the 2-year Treasury bond.

"The seasonality and the inversion signals are aligned here".

"Even if it is accurate in foreshadowing a recession, that doesn't mean it's coming tomorrow", he added.

Also Wednesday, European markets fell after Germany's economy contracted 0.1% in the spring due to the global trade war and troubles in the auto industry. "USA growth for Q2 came in at 2.1% in the preliminary estimate, and Chinese retail sales have pointed to stabilization". Brent crude, used to price worldwide oils, fell 38 cents to $59.10 per barrel in London.

The losses followed a dark day on European bourses and on Wall Street, with all three USA benchmarks tumbling around three per cent and U.S. bond yields plunging as investors deserted stocks for safer Treasury assets. The contract fell $1.82 on Wednesday to close at $55.23.

The yen too pulled back 0.3%, having firmed for eight of the past ten sessions against the dollar. Excluding a mini-crash episode in January, it recently hit 17-month highs JPY=D3. The euro edged up to $1.1142 from $1.1138.

Mizuho senior economist Colin Asher forecast more yen strength.

Thus, there is a very high chance that the markets will recover self-possession, and without any fresh disturbing news, they may well return to cautious buying, offsetting the news about the inversion of the yield curve.