Fears over “recession” in the global economy are escalating amid sluggish economic indicators in Germany and China, the growth engines for Europe and Asia, respectively. Stocks tumbled big time in New York on Wednesday as long-term bond yields fell below short-term bond yields, which is a sign for a looming economic recession, for the first time in 12 years since June 2007. Stocks in major Asian markets also fell in tandem on Thursday. The Korean stock market closed due to National Liberation Day on the day.
The Dow Jones Industrial in New York plummeted by 800.49 points (3.05 percent) to close at 25,479.42 on Wednesday, marking the biggest drop of the year and fourth steepest in history. The broader S&P 500 plunged by 85.72 points (2.93 percent) to close at 2,840.60, while the tech-heavy Nasdaq declined 242.42 points (3.02 percent) to finish at 7,773.94.
As a result, the yield on the 10-year Treasury bond momentarily fell to 1.623 percent, lower than the 2-year bond yield (1.634 percent) in the New York bond market, on the day. Generally the longer the maturity of the bond is, the higher the interest rate. However, if concern over an economic recession mounts, the yield on long-term bonds declines as demand for long-term bonds rises amid investors’ growing appetite for safe assets.
The crude oil price also tumbled due to an outlook of falling demand stemming from a looming economic recession. The West Texas Intermediate for September deliveries shed 3.3 percent (1.87 dollars) per barrel to close at 55.23 dollars.
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