European and Asian stocks fell as investors sought out the relative safety of US government debt amid fears over persistent trade tensions between the US and China and concerns over a slowing global economy.
The broad Stoxx 600 index in Europe deepened declines during morning trading and was recently down 1.5 per cent, taking its losses for this month to more than 5 per cent. The Iseq fell by 1.6 per cent, while the Frankfurt-based Dax and London’s FTSE 100 were both down by 1.4 per cent.
Trade frictions between the world's biggest two economies have shown little signs of cooling off. On Tuesday, China's powerful planning body threatened to use rare earths exports as leverage in the trade war. That came after Donald Trump, the US president, said in Tokyo that the US was not ready to reach a trade deal with China.
But the US Treasury stopped short of declaring China a currency manipulator in its twice-yearly report on foreign exchange practices, a move which avoided ratcheting tensions a notch higher.
US yields
Investors have sought safety in Treasuries, with yields on US 10-year sovereigns sliding further to their lowest level since September 2017. Bond yields fall as their prices rise.
German sovereign bonds also rallied, sending yields on 10-year Bunds to a two-and-a-half-year low of minus 0.169 per cent. Investors also moved into UK government bonds, sending the yield on 10-year gilts down 2 basis points to 0.904 per cent, its lowest level since October 2016.
Paul Donovan, chief economist of UBS Wealth Management, said: “The uncertainty caused by trade policy is likely to continue to delay investment, slowing economic growth. It is logical for bond markets to react to this. It is not logical to price in a recession.” – Copyright The Financial Times Limited 2019
