Stocks Pause as Bonds Signal Warning on Chinese Outbreak
January 28 2020 - 7:30AM
Dow Jones News
By Anna Isaac
Global equities were mixed Tuesday, with U.S. stock futures
edging higher even as bond markets briefly flashed a recession
signal for the first time since October.
Futures tied to the Dow Jones Industrial Average rose 0.2%, a
day after the index for blue-chip U.S. stocks shed more than 450
points, as investors parsed efforts world-wide to contain a deadly
virus outbreak in China. The Stoxx Europe 600 gauge wavered between
gains and losses, while exchanges in China and Hong Kong remained
closed for the Lunar New Year holiday.
The outbreak of coronavirus -- which has killed more than 100
people and infected over 4,500 in China -- risks further stymying
an already slowing Chinese economy that is increasingly important
for overall global growth. Travelers in recent weeks have also
carried the infection to other countries including the U.S.,
Australia, Germany and Japan, prompting worries about health
authorities' ability to contain the epidemic.
Investors were largely expecting a slight uptick in global
economic growth this year, and are now reaching for safer assets
like U.S. government bonds amid rising concern about the potential
impact of the Chinese outbreak, leading to the flattening of the
yield curve.
"If you take China's growth out the equation, then the basis for
your global growth forecast starts to fall apart," said Seema Shah,
chief strategist at Principal Global Investors.
The yield on the 10-year Treasury briefly dipped below that of
the three-month bill, before paring back declines to 1.587%. The
three-month U.S. government debt is currently at about 1.577%.
When longer-dated debt offers smaller returns than bonds with
shorter maturities, it can be an indicator of fixed-income
investors' growing concern about the economy. Still, the yield
curve can invert a number of times before the start of a recession:
last year, markets went on to largely shrug off the event.
Over in Asia, South Korea's Kospi equity index ended Tuesday
down 3.1% -- the biggest drop since October 2018 -- after markets
in the country resumed trading following the Lunar New Year
holiday. The retreat was led by declines in tourism and technology
stocks.
Major exchanges in Hong Kong are scheduled to open Wednesday,
while bourses on the mainland will be closed until next week after
Chinese authorities extended the holiday in a bid to curtail mass
migration and contain the virus.
Commodities prices also continued to fall on concern that the
viral outbreak may damp China's demand for energy and industrial
metals. Brent crude, the global benchmark for oil, dropped 0.8% to
$58.13 a barrel.
Later in the day, Starbucks and eBay are among the major U.S.
companies scheduled to report earnings.
The Commerce Department is also due to release December
durable-goods orders, an indicator for manufacturing health in the
U.S. Economists surveyed by The Wall Street Journal estimate that
orders climbed 0.2% last month.
Write to Anna Isaac at anna.isaac@wsj.com
(END) Dow Jones Newswires
January 28, 2020 07:15 ET (12:15 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.