Government debt prices rose sharply on Friday while Wall Street stocks fell after disappointing business surveys on both sides of the Atlantic raised investor concerns about the global economic outlook.
The yield on the 10-year Treasury note fell 0.13 percentage points to 2.79% after a closely watched survey signaled a contraction in business activity in July. Yields fall when prices rise.
The S&P Global Composite PMI fell from 52.3 in June to 47.5 in July, falling below the 50 level indicating expansion for the first time since June 2020.
The decline was driven by particularly weak reports from respondents in the services sector, heightening concerns that the Federal Reserve’s efforts to fight inflation by aggressively raising interest rates are pushing the US economy into recession.
“The Fed has made it very clear that price stability is their number one objective and they almost have to target a recession to lower inflation,” said Seema Shah, chief strategist at Principal Global Investors.
The result also knocked stocks, with the S&P 500 index of blue-chip stocks down 1.5 percent in mid-afternoon trading.
The tech-heavy Nasdaq Composite fell 2.4 percent as Snap became the latest tech name to report suffering from the tough macroeconomic environment. The group’s shares fell by 38% after it recorded a quarterly loss of 422 million dollars and reporting a decrease in demand for advertising.
Google and Microsoft said they were reassessing their investment priorities, while investment bank Goldman Sachs warned it might slow hiring.
Eurozone bond markets also reflected economic worries after the corresponding PMI survey for the currency bloc fell to a 17-month low of 49.4, worse than economists had predicted.
The yield on the 10-year German bond fell 0.17 percentage points to 1.04 percent, while the two-year yield that closely tracks interest rate expectations fell 0.24 percentage points to 0.42 percent.
“There are many shocks affecting the Eurozone economy,” said Hetal Mehta, a senior European economist in legal and general investment management. “A recession is likely at the beginning of the year.”
Despite signs of concern in the bond market, Europe’s Stoxx 600 stock index rose 0.3%.
Government bonds rally as weak business surveys darken outlook Source link Government bonds rally as weak business surveys darken outlook