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Global slowdown fuels recession concerns

All eyes are on retail sales data from the UK and the US amid growing fears of another global recession.

Centtrip: Markets await Fed interest rate decision

Stock markets are under pressure worldwide on concerns over the US-Chinese trade war and decelerating global economy.

Despite positive UK inflation data, which showed an increase to 2.1 per cent in July versus expectations of 1.9 per cent, long-term bond yields declined. The UK yield curve inverted for the first time since 2008. Historically, the inversion has preceded previous economic recessions.

The stronger-than-expected inflation data, combined with 11-year-high wage growth, increased speculation that the Bank of England is unlikely to cut interest rates in the near future.

Economic output in Germany, Europe’s largest economy, contracted in the second quarter, while the factory output in China, the world’s second-largest economy, came in lower than expected.

In this environment, risk appetite declined again amid increased fears of a global recession, which provided more support for safe heavens. Spot gold rose by 0.3 per cent to its highest level in six years, while the Yen held its gains against major currencies.

With no big US data releases, the attention was on bonds. US 30-year Treasury yield fell to a new historic low below 2 per cent. Ten-year bond yields fell to 1.6 per cent, below the 1.61 per cent yield offered for two-year Treasuries, inverting the so-called yield curve.

In Asia, 10 weeks of increasingly violent clashes between police and protesters in Hong Kong have plunged the city into the worst crisis since it reverted to China from the British rule in 1997. This could trigger more risk aversion in the currency market. More protests are planned tomorrow, 16 August and over the weekend in different areas of Hong Kong.

Data-wise, all eyes are on UK July retail sales figures out this morning at 09:30 (BST) and US retail sales at 13:30.

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