Business_news US stocks are set to rally despite historic Treasuries meltdown that sent equities plunging


AP Photo/Richard Drew

US stocks are set to rally on Thursday morning, after equities suffered their worst night of the year, with the Dow Jones losing 800 points in single afternoon’s trading. 

Stocks dropped on fears of a recession, as the spread between 2 and 10 year treasury yields fell below zero — a sign that recession could be on the horizon.

The yield on US 30-year bonds also fell to a new low, below 2% for the first time ever, once again signalling a shrinking economy.

“While investors may still make an annual return of 1.98% for holding 30-year bonds until maturity, when taking inflation into consideration they may end up with negative real returns,” according to Hussein Sayed, Chief market Strategist at FXTM. “That’s a terrible situation for pension funds and some insurance companies who are obliged to have exposure to long duration bonds.”

Meanwhile, the global economic slowdown continued on Wednesday with both Germany and China reporting poor results. Germany’s economy contracted in the three months to June, while industrial production in China fell. 

US futures are positive as dip buyers test the water – but this could be dragged lower through the European session, said Neil Wilson, Chief market Analyst at “We need to see how Europe pans out. I would not be banking on a recovery and at send, European shares were up a tad but looking precarious as they flirted with the flatline,”

“The tariff delay rally was a dead cat bounce. Investors are filtering out this kind of noise to focus on real economic data,” Wilson added. “This shows that outside the US, where growth remains ok, the rest of the world is not doing well. We should always caution that while yield curve inversion was a definite sell signal, stocks can have a pump after these events.”

Here’s how markets look at 9.15 a.m in London (4:15 a.m. ET):

  • US futures are rallying, with the S&P 500 up 0.6% and the Nasdaq up 0.5%. 
  • European markets opened marginally higher, with the German Dax up 0.6% and Euro Stoxx 50 up 0.6%.
  • Asian markets closed mixed, with the Nikkei 225 falling 1.2%, while the Shanghai Composite and the Hang Seng both rose, 0.3% and 0.8% respectively. 
  • Markets in Italy, Austria and Greece are shut for public holidays.
  • Oil markets continued to be battered by trade war uncertainty with WTI down 0.3% and Brent Crude down 0.6%.