- Safe-haven assets from Treasuries to gold surged Friday amid escalating trade tensions between the US and China.
- Tensions are likely to continue and add volatility to markets, said Bill Adams of MFS Investment Management.
- Commodities and oil slid as well. Stocks pared losses into the market close.
- Read more on Markets Insider.
Investors are piling into safe-haven assets once again as the trade tensions between the US and China heat up.
Gold surged nearly 2% to $US1,537.70 an ounce and bonds rallied, briefly inverting the yield curve between 10-year and two-year US Treasurys for the fourth time in two weeks.
The surge in haven assets came as stocks sank on escalating trade tensions between the US and China. Early Friday, China announced that it would impose retaliatory tariffs on $US75 billion worth of US goods in two rounds, one beginning on September 1 and the second on December 15. Soon after, Trump tweeted that he would respond to the Chinese tariffs this afternoon.
The movement in debt versus equity markets Friday was “a confirmation of all the recent trends,” Bill Adams, the chief investment officer of fixed income at MFS Investment Management, told Markets Insider. The trade war is something that markets are going to have to deal with for a long time, he said. Any positive headlines in the near term is “really just a cease fire, if you will.”
The appeal of safe-haven assets increases when investors fear that market volatility will rock riskier bets such as equities. On Friday, the Cboe volatility index, or VIX, soared to 19 after China’s retaliatory tariffs and Trump’s tweets saying the US would shortly respond.
All the major stock indexes – the S&P 500, Nasdaq, and Dow- pared losses in to the market close.
Recession worries are on the rise. In addition to the spread between 10-year Treasurys and two-year treasuries fluctuating between positive and negative territory, there are other signs flashing. The inverted spread between three-month US treasuries and 10-year notes increased to its widest level since March 2007. This part of the yield curve is a recession indicator watched by markets and used by the New York Fed’s recession probability tracker, which is at highs not seen since before the Great Recession.
But not all safe-havens jumped. The US dollar, long considered a safe currency, declined Friday – the dollar index, a measure of the currency’s strength, fell 0.56%. President Trump has long called for a weaker dollar, which he says will help the US compete in global trade.
Other parts of the market also showed weakness. Some commodities slid on the trade news as they are caught directly in the middle of the turmoil – soybeans will be subject to a tax beginning on September 1. Oil also took a hit, sliding more than 2%.
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