Stocks Drop, Yield Curve Inverts on Renewed Global Growth Concerns.

US: S&P 500 Index -0.8%%, Dow -1.3%, Nasdaq -0.6%
Europe: STOXX Europe 600 -1.3%, German DAX -2.8% France CAC 40 -2.5%, U.K. FTSE 100 +1.8%
Asia: Japan Nikkei +0.8%, China Shanghai Composite +2.7%, Korea KOSPI +0.5%
Rates/Commodities: 10-Year Treasury yield -15 basis points to 2.44%, WTI crude oil +2.5%, COMEX gold: +0.5%

A topsy-turvy week for global financial markets saw U.S. and European stocks shed early-week gains and several measures of the Treasury yield curve invert for the first time since 2006 following a resurgence in global growth concerns.

Stocks were in somewhat of a holding pattern to start the week as investors looked ahead to the Federal Reserve’s (Fed) two-day monetary policy meeting, which ended Wednesday. Though interest rates were left unchanged, markets were caught off guard when officials downgraded their economic outlook and backtracked on previous expectations for more rate hikes this year (more insights). The pivot was corroborated, to an extent, on Friday when top-tier data showed activity in the manufacturing sector, though still expansionary, came in below both consensus expectations and the prior month’s reading for a second straight month.

Overseas, PMI data released in Germany, France, and the composite eurozone painted a much bleaker picture of both the manufacturing and services sectors. The U.S. and European data, coupled with the Fed’s about-face, was enough to reignite the “global growth concerns” theme and spur a flight to safe havens like U.S. Treasuries and German sovereign debt. Consequently, the benchmark 10-year Treasury yield tumbled, finishing the week below both 6-month and 1-year yields—inverting the yield curve for the first time since 2006. Meanwhile, foreign investors pushed the yield on Germany’s benchmark 10-year bund back into negative territory for the first time since October 2016. “The inverting of the Treasury yield curve at several key points is certainly attention-grabbing,” said LPL Chief Investment Strategist John Lynch. “However, the Fed’s further easing of monetary conditions amid a robust labor market and still-healthy economic backdrop suggests even if volatility resumes over the near term, fundamentals remain supportive.”

Moving forward to next week, the two reports on U.S. sentiment are due out. Abroad, the docket’s highlighted by another vote in the U.K. Parliament that will help determine the extent of a delay (if any) beyond the March 29 Brexit deadline. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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