Asian Stocks Down on Recession Concerns; US-China Set to Resume Trade Talks

Stocks are trading sharply lower in Asia on Thursday as investors react to Wednesday’s weakness on Wall Street after the benchmark 10-year U.S. Treasury yield hit its lowest level in more than a year. Also rocking the markets is the dramatic shift in the relationship between the 10-year Treasury and the 3-month Treasury.

At 02:05 GMT, Australia’s ASX 200 Index is trading 6129.80, down 6.20 or -0.10%. Japan’s Nikkei 225 is at 20988.50, down 390.15, down 1.82% and in Hong Kong, the Hang Seng Index is at 28566.56, down 161.69 or -0.56%.

South Korea’s KOSPI is at 2125.61, down 20.01 or -0.93% and in China, the Shanghai is trading 3000.07, down 22.64 or -0.75%.

Inverted Yield Curve in Play

Asian stock market investors are reacting to the movement in U.S. interest rates after the benchmark 10-year Treasury yield fell below the 3-month Treasury bill rate last week for the first time since 2007. Investors call this phenomenon an inverted yield curve and they are paying close attention to it because it is a highly accurate predictor of recessions.

The price action in the Treasurys indicates that investors are worried about the short-term outlook for the economy and want to be paid to take on the extra risk.

The choppy price action in both the U.S. and Asian stock markets reflect investor indecision. Typically, lower interest rates green lights a stock market rally, however, since the inverted yield curve could be indicating a recession, investors are paring long stock market positions to protect themselves against an even steeper sell-off later in the year.

U.S.-China Trade Relations

There hasn’t been much reported progress in the U.S.-China trade talks. This isn’t necessarily a good or bad development. It’s just part of the process. Talks are held in China and then the U.S. representatives return home. Talks then move to the U.S. and their representatives return home. However, both sides are not obligated to report to the media about the substance of the discussions.

On Thursday, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are set to resume negotiations with their Chinese counterparts in Beijing.

Investors have grown numb to the trade talk headlines and with recession talk dominating the news, nothing short of the announcement of a trade deal between the two economic powerhouses is likely to move stocks in Asia or the United States.