Picture: 123RF/SOLAR SEVEN
Picture: 123RF/SOLAR SEVEN

London — Stock markets remained under pressure on Tuesday as worries about a clampdown on the world’s internet and social media giants compounded mounting global trade and recession jitters.

Those nerves have pushed investors into top-rated government bonds and other safety plays in recent weeks, and there was little sign of a significant reverse as Europe opened.

Benchmark 10-year US treasury yields steadied just above 2% on bets the US Federal Reserve would raise US interest rates and many as three times this year. German bund yields stuck near record lows, and the yen reached a five-month high against the dollar.

Europe’s Stoxx 600 index recovered from a weak start, but tech stocks remained more than 1% lower after reports the US government is gearing up to investigate whether Amazon, Apple, Facebook and Google misused their market power.

A combined $85bn was wiped off Facebook and Google parent Alphabet’s values. New York’s tech-heavy Nasdaq dropped into correction territory, having lost 10% over the past month.

“The [US investigation] is currently weighing on stocks, but, more importantly, the market is increasingly pricing in the risk of recession,” said Rabobank senior macro-strategist Teeuwe Mevissen. “Sentiment is significantly suppressed.”

Global monetary policy is in focus this week as the hostile trade rhetoric between the US and China continues. Fed rate setter James Bullard said on Monday that lowering US rates “may be warranted soon”.

Australia’s central bank cut rates to a record low and on Thursday the European Central Bank(ECB) is set to detail a fresh dump of cheap money. India is expected to lower its rates too.

MSCI’s broadest index of Asia-Pacific shares outside Japan had ended down 0.3%. China’s blue-chip CSI300 dropped 0.9% and the Hang Seng lost 0.66% in Hong Kong. Japan’s Nikkei ended flat after a rocky session. Wall Street futures gained.

Scramble to safety

US treasury yields also rose but remained near recent lows. US 10-year notes yielded 2.09% after touching 2.06 — the lowest since September 2017.

All this underlined the scramble to reprice Fed policy and the biggest two-day drop in US two-year treasury yields since the 2008 crash. The yield curve between three-month and 10-year debt has inverted by as much as 27 basis points, historically a recession signal.

Adding to the rates rethink has been a recession-spooked recoil in world oil prices. Brent crude futures are now testing $60 a barrel for the first time in four months. It was last down 0.6% at $60.92 a barrel and US crude was down 0.4% at $53.02.

In contrast, safe-haven gold was up 0.1% at $1,326.47 a ounce, near three-month highs. 

“Risk aversion has also been seen with the yen carry trade unwinding as the markets comprehend that the US technology containment strategy towards China is unlikely to be reversed,” analysts at Jefferies said in a note. “In the short term, positioning has become so bearish that ‘a ceasefire’ could spark a risk rally.” 

Reuters