Business news - LIVE: Markets deliver ominous signal US recession may be looming
Follow live business updates
For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails
Sign up to our free breaking news emails
Markets have delivered an ominous sign that recession may be on the way while Germany’s economy shrank and Chinese industrial output slumped to a seventeen-year low amid deepening fears about the worldwide fallout from Donald Trump’s trade war.
Yield curves inverted on UK and US government debt on Wednesday, signalling deepening pessimism about both countries’ economic futures.
America has fallen into recession after the last seven times yield curves have inverted. An inversion means long-dated government debt is delivers a lower return than short-dated government debt.
Meanwhile, a poll this week found that the number of fund managers predicting the global economy could enter contraction in the next year jumped to its highest since 2011.
Please allow a moment for the live blog to load
A slowdown in China appears to be worsening, which is beginning to have knock-on effects beyond China's borders.
Today's figures showing industrial production dropping back to just 4.8 per cent were driven by manufacturing with construction also appearing to be on shaky ground, writes Freya Beamish, chief Asia economist at Pantheon Macroeconomics.
Beamish says: "The July rate is weaker than the financial crisis lows, crushing hopes of a swift economic recovery sown with the bounce in June.
"These data cast doubt on theories that the Chinese authorities will see any appeal in waiting out Mr. Trump in the trade negotiations."
Economists are issuing increasingly dire warnings about the health of the world economy.
Germany's government has plenty of fiscal room to turn on the spending taps and pull the country out of contraction but, as ever, will be reluctant to do so, says Steen Jakobsen, chief economist at Saxo Bank.
That means Europe's biggest economy will "take France and Italy with it into a deep European recession" he says.
More on today's data showing an unexpectedly sharp rise in inflation:
Stock markets are tumbling across Europe after the news that Germany's economy is in reverse.
Germany's Dax is down 0.76 per cent to 11,660.62
France's CAC 40 down 0.71 per cent to 5,324.75
UK's FTSE100 down 0.31 per cent to 7,227.48
Donald Trump's decision yesterday to delay tariffs on a host of Chinese imports has not been enough to temper the concerns about a trade war and economic slowdown.
Britain could face a Brussels sprouts shortage at Christmas after a week of heavy rain damaged crops in Lincolnshire.
The situation is "very concerning" according to the British Growers Association.
Shoppers are already facing a shortage of cauliflowers, cabbages and broccoli after Lincolnshire, a key UK farming region, was deluged with six inches of rain in a week in June.
British Growers chief executive Jack Ward says:
"For some, a year's work was destroyed in one week of rains."
"Crops come in waves but we're looking at the shortage going on for another two to three weeks, possibly extending to broccoli.
"The rain also affected a lot of young plants so there are likely to be problems into winter across the board with brassicas.
"There's some way to go but crops that have been waterlogged, like Brussels spouts, it's not getting them off to the start they need to produce the quantities we would want to see."
The pound has risen on the back of higher-than-expected inflation.
Sterling is up 0.3 per cent against the dollar to $1.2094 and 0.2 per cent against the euro at €1.08.
A potentially worrying signal from UK bond markets that recession could be on the way: The yield curve on UK government debt has inverted.
What does this mean?
Ten-year government debt now offers a lower interest rate than two-year debt. Basically, bond market traders are pessimistic about the future of the UK economy.
They think growth will tank and central banks will have to slash interest rates in future to support the economy.
This is unusual and, in some circumstances, particularly in the US, has happened ahead of a recession.
What exactly is an "inverted yield curve" and does it signal a recession is on the way?
The general argument is that traders expect the economy to be weaker further out than it is today and for the central bank to be compelled to cut interest rates at some point to support growth.
So traders bid the yields on longer-term bonds lower than shorter ones in anticipation of that monetary policy shift (rate cuts mean higher bond prices which, in turn, mean lower bond yields).
Yet, if this is what’s going on, there’s no clear reason why this cooling should mean an outright recession rather than simply a growth slowdown.
The fact that a recession has tended to follow inversions has merely been the historical pattern.
More answers can be found here:
Yield curves briefly inverted in the US too as fears about the impact of a trade war grew, but are now back to normal. Just.
10-year US Treasuries are now back at 1.654 per cent, a very slightly higher yield than two-year US Treasuries at 1.642 per cent.
The last few times the curve has inverted, a US recession has followed...
But the lag has been anything between 10 months and three years.
Subscribe to Independent Premium to bookmark this article
Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Premium subscription today.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies