US stocks and Treasury yields turned sharply lower on Monday, in a new burst of negative sentiment around the trade war with China, political developments in Argentina and Hong Kong and fears for the global economy.

The sell-off in equities picked up steam late in the trading session, knocking the benchmark S&P 500 down 1.2 per cent in a broad-based decline that was led by shares in banks, which came under pressure as yields retreated.

Technology stocks, which are considered particularly vulnerable to US-China trade tensions, also dropped. The tech-heavy Nasdaq Composite saw a 1.2 per cent slide. The Dow Jones Industrial Average booked a 1.5 per cent loss.

The spread between short- and long-dated government debt tightened, exacerbating the economic jitters on Wall Street.

Yields on the 10-year US Treasury note dropped 9.4 basis points to 1.6403 per cent, extending a recent slide. The two-year yield, which is more sensitive to monetary policy, was down 5bp at 1.5796 per cent.

The 30-year yield slipped as low as 2.119 per cent, its weakest since July 2016 when it touched a record low of around 2.088 per cent. It was recently down more than 11bp at 2.1318 per cent.

“Investors no longer expect a constructive resolution to the US-China trade dispute and are now seeing it as part of a multiyear hegemonic conflict” between the two superpowers, said Neil McKinnon at VTB Capital Research. “Real money investors are likely to retreat for the rest of the summer in light of the increased market volatility and the growing uncertainty over the prospects for the global economy.”

READ ALSO  Google must respond to U.S. antitrust lawsuit by Dec. 19

Meanwhile gold, a perceived haven that investors lean on in times of uncertainty, on Monday rose to as high as $1,517.46 a troy ounce, a fresh six-year high. It was recently up 1 per cent. The precious metal has risen about 17 per cent since January 1.

In Europe, the continent-wide Stoxx 600 fell 0.3 per cent, after an initial rebound from Friday’s close. The index has shed more than 4 per cent this month. Frankfurt’s Dax index was down 0.1 per cent while the FTSE 100 fared worse with a 0.4 per cent slide.

Political uncertainty is accelerating in Europe, with Italy likely to call snap elections, while Argentine assets have come under pressure after the populist candidate Alberto Fernández took the lead in primary elections on Sunday. Investors were also watching developments in Hong Kong, where protests led to the cancellation of flights.

Among currencies being hit, sterling fell to its lowest level since October 2016 against the euro early on Monday before rebounding. The pound dropped as low as €1.0723 before recovering slightly, trading 0.3 per cent higher at €1.0768, and up 0.3 per cent against the dollar at $1.2074.

There was little fresh optimism on the trade front for investors to embrace, with US President Donald Trump indicating on Friday that he was not ready to make a deal with Beijing. Recent evidence suggests a global economic downturn is gathering steam. 

Top markets stories

Via Financial Times