LONDON, Aug 14 — London’s FTSE 100 tumbled to its lowest in more than two months today after the yield curve on US and UK government bonds inverted for the first time since the global financial crisis, fuelling fears of a possible recession ahead.
The FTSE 100 index, which was already lower because of weak Chinese economic data, dropped 1.4 per cent by 1326 GMT with losses across all sectors. The midcap index slipped 1.1 per cent.
The yield on the 10-year gilt fell below the yield on the two-year gilt shortly after 1000 GMT for the first time since 2008, traditionally a sign that some investors think a recession is nearing.
An inverted yield curve means short-term bonds pay more than long-term bonds.
That battered the FTSE 100, leaving it on course for a monthly fall of 5.7 per cent — the steepest in four years.
Global stocks fell further, as the situation on Wall Street was equally gloomy after the US treasury yield curve inverted.
‘Tempest in a tea pot’
Some analysts played down recession fears, saying that central banks could again ride to the rescue.
“Quite frankly this seems a little like a tempest in a tea pot,” said CMC Markets analyst Michael Hewson.
Escalating China-US trade tensions have been the main headache for markets in recent months, although until August the Brexit-induced weakness of the pound had helped the exporter-heavy FTSE 100 notch up back-to-back monthly gains.
“It’s (yield curve inversion) been coming for a while ... It’s quite possible that we see a recession towards the second half of next year at the earliest. I wouldn’t say it’s the beginning of the end here,” IG Markets analyst Chris Beauchamp said.
Upbeat corporate earnings helped some individual stocks hold onto gains despite the generally morose mood.
Admiral jumped five per cent after the insurer posted a bigger-than-expected rise in earnings, driven by more customers in its UK business.
Balfour Beatty jumped 8.2 per cent, its biggest one-day rise in more than 4-1/2 years, after the infrastructure company reported a rise in underlying profit and raised its annual cash forecast.
Cybersecurity firm Avast climbed 7.6 per cent after it said revenue growth would be at the upper end of its target, driven by demand for products such as “AntiTrack” that help secure users privacy.
However, Sports Direct shed 11.6 per cent after the retailer said its auditor Grant Thornton had quit, a move that left the company struggling to find a replacement. — Reuters