US Recession fears linger as bond yields continue to fall

Stock Markets

Australian shares are poised to edge lower today after US bond yields fell again on Wednesday, with the extended inversion in the yield curve raising concerns about the possibility of a recession in the US. Yields fell on Wednesday after Stephen Moore, who is expected to be nominated to the Federal Reserve Board of Governors, called for the central bank to cut rates by half a percentage point in an interview with The New York Times. Lingering fears about the future of the US economy outweighed a narrowing of the US trade deficit which shrank faster than expected in January, falling from a December level that was the biggest in a decade. A new round of US/China trade talks were scheduled to begin today, with an actual deal expected to be struck by late May or June.

The Australian bond market has shown inversion, however, yields continued to plummet on Wednesday after the Reserve Bank of New Zealand switched to a dovish stance and said a rate cut was now more likely than a rate hike. Australian 3-month, 5-month and 10-year bonds are currently all-time lows.

Wall Street's major indexes fell overnight as investors weighed a narrowing of the US trade deficit against worries about a recession and possible delays in US/China trade talks. The Dow Jones, S&P 500, and NASDAQ 100 all ended in negative territory, with the indexes losing 32.14(-0.13%), 13.09 (-0.46%) and 48.14 (-0.63%) points respectively.

The benchmark S&P/ASX200 index closed up 5.4 points (+0.09%) on Wednesday, bolstered by strong gains in the technology sector which acted to offset losses in the utilities sector. The technology sector was collectively up 0.89% with Afterpay, Wistech Global, and Xero up 1.89%, 1.38% and 1.86% respectively. Conversely, the utilities sector led losses and was collectively down 1.34% with APA Group and AGL Energy down 1.95% and 1.41% respectively. and mining sectors were collectively up 1.44% and 0.72% respectively.

ASX 200 futures are currently down 12 points. 

Today's data releases: Eurozone M3 money supply February, economic confidence March, business climate indicator March and consumer confidence March, US GDP Q4 data, US pending home sales February, Kansas City Fed index March.

Commodities and Currencies

Oil prices slipped on Wednesday following news of US crude stockpiles sharply increasing. Brent crude and WTI crude were down overnight at US$67.86 (-0.16%) and US$59.41 (-0.88%) respectively.

Iron ore prices are currently down 0.1% at US$85.11 per tonne.

The spot price of gold is currently down 0.43% at US$1309.97.

The AUD is currently marginally up 0.06% at US71.33¢.

This article was written by Mithun Fernando – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.