Stocks slide as doubts grow over trade war truce – Financial Times

Tuesday 21.00 GMT

What you need to know

  • S&P 500 tumbles 3.2; biggest one-day drop for two months
  • Treasury yield curve inverts at short end; 10-year yield down 8bp
  • Renminbi registers biggest two-day rise against the dollar since 2005
  • Sterling lower after volatile session
  • Brent oil rallies amid speculation about output cuts


The post-G20 relief rally for global equities proved shortlived as doubts emerged about the durability of the US-China trade war truce and as financial stocks were unsettled by the continued flattening of the Treasury yield curve.

Indeed, the yield on the two-year Treasury note edged above that on five-year paper, inverting that segment of the curve for the first time in a more than a decade. Some in the markets view an inverted yield curve as a warning about the prospects for the US economy.

“That fits with the more dovish tone at the Federal Reserve and continuing concerns about slowing global growth,” said Action Economics of the inversion. “It also dawned on the markets that the US-China deal was an agreement to agree, with much of the heavy lifting on detail yet to be done.”

Meanwhile, the gap between two- and 10-year US yields narrowed to below 11 basis points, less than half what it was just a week ago.

“In the coming months, we expect the two-10 spread to turn negative as well,” said Philip Marey, senior US strategist at Rabobank. “That will be a signal to tighten our seat belts for a hard landing.

“Our recession model now indicates a 47 per cent probability of a recession by April 2020.”

The dollar continued its broad retreat as Treasury yields fell, with the Chinese renminbi registering its biggest two-day rally since 2005.

Danske Bank analysts said this could be down to a squeeze of short renminbi positions after the meeting between presidents Trump and Xi, or intervention by China as part of the deal, or a combination of the two.

However, sterling gave back an early rise against the dollar after the government of Theresa May was found in contempt of parliament for refusing to publish key Brexit papers. The pound initially rose after a senior EU legal adviser said the UK could unilaterally withdraw its Brexit notice.

The generally softer tone of the dollar helped put gold on course to register its highest close since July. The price of palladium hit a record high, and briefly surpassed that of gold.

Brent oil extended the previous day’s rally — rising as high as $63.58 a barrel — as speculation mounted that Opec and its allies would agree to cut output at this week’s meeting in Vienna.

Fixed income and forex

The 10-year US Treasury yield was down 8bp at 2.91 per cent, with the two-year down 3bp at 2.80 per cent. The five-year yield was 5bp lower at 2.79 per cent.

German Bunds followed suit, with the 10-year yield shedding 5bp to 0.26 per cent.

The dollar index was down 0.1 per cent at 96.97, as the euro slipped 0.1 per cent to $1.1339 and the greenback shed 0.8 per cent against the yen to ¥112.80.

The pound rose as much as 0.9 per cent against the dollar before going into reverse to stand 0.1 per cent lower in late trade at $1.2711 — off a 17-month intraday low of $1.2661 hit earlier in the day.

The onshore renminbi strengthened to Rmb6.83 per dollar from Rmb6.96 on Friday.


An early sell-off for US stocks gathered pace after the S&P 500 broke through its 200-day moving average. The benchmark index ended 3.2 per cent lower at 2,700, its biggest one-day drop since October 10.

Financial stocks fell 3.9 per cent, while the industrial sector shed 4.2 per cent and technology tumbled 4 per cent.

The tech sell-off was reflected in a 3.8 per cent decline for the Nasdaq Composite index, taking it back into “correction territory”, defined as a drop of 10 per cent from a recent peak. The Dow Jones Industrial Average closed 3.1 per cent, or 800 points, lower.

The Cboe Global Markets Vix volatility index rose back above its long-term average of 20, after closing at 16.44 on Monday.

In Europe, the pan-regional Stoxx 600 ended 0.8 per cent lower as Frankfurt’s Xetra Dax 30 fell 1.1 per cent and London’s FTSE 100 shed 0.6 per cent.


Brent crude settled at $62.08 a barrel, up 0.6 per cent, although US West Texas Intermediate was down 0.2 per cent in late trade at $52.86.

Gold was up $7 at $1,238 an ounce, with palladium up 2.4 per cent at $1,232 — after hitting $1,239.

Additional reporting by Michael Hunter in London and Hudson Lockett in Hong Kong

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