Stocks get hammered as bond market’s warning spooks investors

Stocks in Asia were poised to join a global sell-off after U.S. equities tumbled and a closely watched part of the Treasury yield curve inverted, raising recession fears. Treasuries surged.

Futures indicated losses of more than 2% in Japan. The S&P 500 Index tumbled almost 3% on Wednesday as the 10-year Treasury rate slid below the two-year for the first time since 2007. The 30-year yield fell to the lowest on record. Bonds also climbed across Europe, with the U.K. yield curve inverting for the first time since the financial crisis and Bund yields sliding to a fresh record low. Gold surged and crude oil slumped.

Warnings flashing in bond markets are spooking investors who are already seeking shelter from the fraught geopolitical climate and the impact of the global trade war. While curve inversions normally precede economic downturns, they do not necessarily signal an imminent collapse in growth. The Federal Reserve will likely be powerless to keep the U.S. economy from falling into a recession and the 10-year yield could sink to zero by 2021, said JPMorgan Chase & Co.’s Jan Loeys.

“You no longer have anything anchoring markets, you no longer have the Fed’s ability to repress financial volatility,” Mohamed El-Erian, Allianz Chief Economic Advisor & Bloomberg Opinion columnist, told Bloomberg TV. “The answer is more pro-growth policies to lift structural impediments and unfortunately that’s unlikely to materialize. That’s the big concern looking forward.”

Meantime, European shares lost more than 1.5% after Germany’s economy contracted in the second quarter, adding to angst fueled by weak Chinese retail and industrial numbers.

Here are the main moves in markets:

Stocks

The Dow Jones Industrial Average fell 800.49 points, or 3.05 per cent, to 25,479.42, the S&P 500 lost 85.72 points, or 2.93 per cent, to 2,840.6, and the Nasdaq

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