Asia Markets

Asia stocks mixed as bond markets signal recession warning

Key Points
  • Shares in Asia were mixed on Thursday as the main yield curve in U.S. Treasurys inverted, triggering fears over the state of the U.S. economy.
  • Investors watched the bond market on Thursday, after the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate overnight, an odd bond market phenomenon that has historically been a reliable indicator of economic recessions.
  • The yield between the 10 and 2 year Treasury note hovered around the inversion mark during the afternoon of Asian trading hours.
  • Bank stocks across the region mostly fell on Thursday, after financials stateside saw a rout overnight amid the market turmoil on Wall Street.

Shares in Asia were mixed Thursday afternoon as the main yield curve in U.S. Treasurys inverted, triggering fears over the state of the U.S. economy.

In mainland China, stocks rose on the day following an earlier slip. The Shanghai composite gained 0.25% to 2,815.80, while the Shenzhen component added 0.48% to 9,009.68 and the Shenzhen composite advanced 0.535% to 1,517.07. Hong Kong's Hang Seng index also rose 0.72%, as of its final hour of trading.

Elsewhere, however, stocks largely saw losses.

In Japan, the Nikkei 225 fell 1.21% to close at 20,405.65, while the Topix index dropped 1.04% to end its trading day at 1,483.85. Australia's S&P/ASX 200 tumbled 2.85% to close at 6,408.10, as data on Thursday showed the jobless rate unchanged despite employment numbers in the country soaring past expectations in July.

The MSCI Asia ex-Japan index shed 0.53% overall.

Markets in South Korea and India were closed on Thursday for holidays.

Treasury yield curve inversion

Investors watched the bond market on Thursday, after the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate overnight, an odd bond market phenomenon that has historically been a reliable indicator of economic recessions. The yield on the 30-year Treasury bond was also sent to a new record low on Wednesday.

The yield between the 10 and 2 year Treasury note hovered around the inversion mark during the afternoon of Asian trading hours, with the yield on the 10-year Treasury note last at 1.5877%, as compared to the 2-year rate at 1.5809%. The 30 year Treasury bond also touched fresh historic lows on Thursday.

"We shouldn't ignore that this historically reliable indicator of the economy is telling us a recession may be looming. But markets have changed significantly in the last decade and yield curve inversion is not the harbinger it once was," Kerry Craig, global market strategist at J.P. Morgan Asset Management, wrote in a note.

"Yield curve inversion is flashing a warning sign – investors should check their portfolios are resilient. But it's not a reason to panic or to lean into the sell-off," Craig said. "The market corrections can also offer fresh opportunities to pick up equities at more reasonable valuations."

Bank shares decline

Bank stocks across the region mostly fell on Thursday, after financials stateside saw a rout overnight amid the market turmoil on Wall Street.

In Japan, shares of Mitsubishi UFJ Financial Group slipped 1.09% and Nomura fell 0.6%. Hong Kong-listed shares of HSBC declined 0.91%, while China Construction Bank advanced 1.77%, as of their final hour of trading.

Over in Australia, the financial subindex declined 2.96% as the so-called Big Four banks saw their stock decline: Australia and New Zealand Banking Group fell 2.96%, Commonwealth Bank of Australia shed 2.99%, Westpac slipped 3.19% and National Australia Bank dropped 3.07%.

Yuan watch

The People's Bank of China set its official midpoint reference for the yuan at 7.0268 per dollar on Thursday, weaker than analysts' expectations.

It was the sixth consecutive session where the People's Bank of China (PBOC) fixed the midpoint at a level weaker than the psychologically important 7-yuan-per-dollar mark.

The onshore Chinese yuan last traded at 7.0249 against the greenback, while its offshore counterpart changed hands at 7.0388 per dollar.

Overnight stateside, the Dow Jones Industrial Average plunged 800.49 points to close at 25,479.42 — its worst percentage drop of the year and fourth-largest point drop of all time. The S&P 500 fell 2.93% to finish its trading day at 2,840.6, while the Nasdaq Composite closed 3.02% lower at 7,773.94.

The moves came amid rising fears over the global economy, with China reporting weaker than expected industrial output for July and Germany posting a negative gross domestic print for the second quarter.

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.973 after surging from levels below 97.8 yesterday.

The Japanese yen, widely viewed as a safe-haven currency, traded at 106.19 after seeing an earlier high of 105.71. The Australian dollar changed hands at $0.6777 after touching an earlier low of $0.6743.

Oil prices were mixed in the afternoon of Asian trading hours after seeing sharp losses on Wednesday. International benchmark Brent crude futures declined 0.27% to $59.32 per barrel, while U.S. crude futures rose slightly to $55.26 per barrel.

— CNBC's Yun Li contributed to this report.