Global stock markets dragged down as recession warning lights flash
US stock markets have opened lower as a recession warning light continues to flash over the American economy.
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They followed their European counterparts, which were also affected by news that UK Prime Minister Boris Johnson is set to suspend parliament in what critics are calling a bid to force through a no-deal Brexit.
The US’s Nasdaq stock index was down 0.4 per cent shortly after the opening bell at 2.30pm UK time. The Dow Jones had fallen 0.1 per cent and the S&P 500 was 0.2 per cent lower.
In Europe, Germany’s Dax index was down 1.1 per cent, France’s CAC 40 was one per cent lower and the pan-European Euronext 100 was down 0.9 per cent.
Britain’s FTSE 100 was 0.2 per cent lower despite the pound having shed 0.6 per cent against the dollar as the UK took a big step closer to a no-deal Brexit.
Investors were reacting to the inversion of the US yield curve – when yields on 10-year government bonds were below those on two-year bonds. Such an event has presaged every recession in recent times.
Neil Mackinnon, global macro strategist at Russian bank VTB Capital, said: “Our view is that it would be unwise to ignore what the curve is saying.”
“Indeed, looking at the curves for most bond markets is actually sending a message of low growth and low inflation over the longer term, thus confirming the so-called ‘secular stagnation’ thesis for the major economies.”
Yet Ruth Lea, economic adviser to the Arbuthnot Banking Group, said: “The markets’ reaction to the inverted yield curve in mid-August, and the possibility of recession in the US, seem very overdone.”
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“Former [US Federal Reserve] Chair Janet Yellen’s comments, that the inverted yield curve was a ‘less good signal’ of recession ‘on this occasion’, and that the US “has enough strength” to avoid recession, seem reasonable.”