All three major US indexes closed down about three per cent on Wednesday, with the blue-chip Dow posting its biggest one-day point drop since October.
The US Treasury yield curve inverted for the first time since 2007, when the US subprime mortgage crisis was gathering pace, in a sign that the world’s biggest economy could be headed for a recession.
The US yield curve has inverted before every recession in the past 50 years.
Dire economic data from China and Germany suggested a faltering global economy, stricken by the increasingly belligerent US-China trade war, Brexit woes and geopolitical tensions.
Germany reported a contraction in second-quarter gross domestic product, and China’s industrial growth in July hit a 17-year low.
Spot gold rose 1.1 per cent to $US1,517.88 per ounce after dipping as much as 2.0 per cent in the previous session.
US gold futures settled up 0.9 per cent at $US1,527.80.
“With major economies in the euro zone reporting negative growth, it’s possible we will see a recession. So for gold in particular, it increases expectations of what the US Federal Reserve will do in terms of easing” interest rates, said Jeff Klearman, portfolio manager at GraniteShares.
“Nothing in the immediate future is working against gold; there may be bouts where gold retraces, but the trend is upward.”
The renewed recession risks drove a slump in global stocks.
“Geopolitics also remains close to the front burner of the marketplace, which is also supporting gold and silver,” Jim Wyckoff, senior analyst with Kitco Metals, wrote in a note, adding “the civil unrest in Hong Kong remains in focus among traders and investors worldwide”.
In a volatile session on Tuesday, gold initially jumped to an over six-year high of $US1,534.31 due to the unrest in Hong Kong and a slump in Argentina’s peso, before reversing to fall 2.0 per cent on signs of a thaw on the trade front.
The CBOE volatility index, a gauge of investor anxiety, jumped 4.58 points to 22.10.
The Dow Jones Industrial Average fell 800.49 points, or 3.05 per cent, to 25,479.42, the S&P 500 lost 85.72 points, or 2.93 per cent, to 2840.6, and the Nasdaq Composite dropped 242.42 points, or 3.02 per cent, to 7773.94.
Over 300 of the S&P 500’s components are down 10 per cent or more from their 52-week highs, according to Refinitiv data.
More than 180 of those stocks have fallen more than 20 per cent from their 52-week highs, putting them in bear market territory.
All of the 11 major sectors in the S&P 500 closed in negative territory, with energy, financials, materials, consumer discretionary and communications services all falling three per cent or more.
Interest rate-sensitive banks tumbled 4.3 per cent.
Macy’s shares plunged 13.2 per cent after the department store operator missed quarterly profit estimates and cut its full-year earnings estimates.
Rival department store operators Nordstrom and Kohls slid 10.6 per cent and 11 per cent respectively.
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