US Stocks Plunge 3% on Recession Fears

US Stocks Plunge 3% on Recession Fears

But the reverse was in effect Wednesday, and the analysts see it as a sign that investors have worries about the immediate state of the US economy.

A financial measurement known as the yield curve inverted on Wednesday morning, causing sections of the financial (and political) press to signal concern for the US economy.

Yields on 10-year Treasury bonds dropped below shorter two-year rates for the first time in 12 years, when the same the yield curve inversion presaged the 2008 recession. The higher demand for long-term bonds pushes up bond prices and suppresses the bond yields.

In effect, investors pay the government to lend to it. But there is something else about government bonds there that is a clearly sign of a weak economic outlook: the fact that yields are below zero.

Data from Credit Suisse shows a recession historically begins an average of 22 months after the yield curve begins, according to CNBC.

Markets in Asia were already on the backfoot after all three major USA stock indexes closed down about 3 percent overnight, with the blue-chip Dow posting its biggest one-day point drop since October. "I lose tons of money but it seems to come back usually", Michael Russell of Berkeley.

"It could be different this time", Carlson said. Simon MacAdam, global economist at Capital Economics, said the chances of a "no-deal" Brexit have risen sharply since Boris Johnson replaced Theresa May as British prime minister last month. "I think the US economy has enough strength to avoid that".

"The now drawn out US-China trade war has sapped investor confidence". It is also harming Germany's export-led economy, which shrank in the second quarter. A chaotic British exit from the European Union looms this fall. South Korea was closed. He has also threatened to hit the remaining $300 billion worth of Chinese imports with 10% tariffs, though he has delayed that increase on about half of those items to avoid raising prices for USA holiday shoppers. Eastern time, giving back all of the prior day's jump, which came after the USA delayed some of the tariffs threatened on Chinese imports. President Donald Trump has imposed 25% tariffs on $250 billion of imports from China, along with duties on most steel and aluminum imports.

Still, for now, most economic signs appear solid.

An abrupt exit would most likely lower the British pound, raising inflation and cutting into British consumer spending.

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Now, although these concerns are growing it is important to remember that the USA economy is actually pretty strong.

Wilcox says Wednesday's inversion is not necessarily a red flag, because long-term interest rates have been falling for some time.

Chinese markets were also hit, with the benchmark Shanghai Composite and the blue-chip CSI300 down 1.1 percent and 1.0 percent, respectively, while Hong Kong's Hang Seng lost 0.8 percent.

"We've got a national unemployment rate that's below 4%".

To combat deflation, the Fed needs to cut rates "immediately" and inject more dollar liquidity into the global economy, Moore said in an interview with NTD, an affiliate of The Epoch Times.

"I think the USA economy has enough strength to avoid that", Yellen told Fox Business on August 14.

But that's not the official definition.

"Forecasting future economic developments is a tricky business, but the [yield curve] has a strikingly accurate record for forecasting recessions", they wrote.

The bureau makes its determination retroactively. That's enough of a reason for Australians to very concerned if the U.S. goes into recession.

The last time the United States entered recession was September 2008. Lately, it is showing that factory activity has been slowing and is near the level that indicates it is shrinking. It's hard to tell. But many economists think it might be relatively mild. Household debt, as a percentage of income, is much lower than it was before the Great Recession. Trade and the construction sector were a particular drag on growth.

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