Weak data prompts rout in equities

Investors have found plenty of reasons to fret about the global economy, thanks to weaker PMIs and an inversion of the 3-month/10-year yield curve.

• Economic data causes swift reversal in sentiment
• Equities due a breather after recent gains
• Banks and miners drag FTSE 100 heavily into the red

An inversion of the three-month/ten-year yield curve has been taken as a sign that a recession may be on the horizon, although not upon us yet. Combined with weaker US PMIs and some truly dreadful figures from the eurozone this morning, it has been enough to spark another swift, but substantial, move to the downside Yield curve inversion is not necessarily an immediate harbinger of doom, but it will signal that growth concerns are on the rise. In another worrying turn, German ten-year bunds have seen their yields turn negative, as investors pile into bonds as a safe haven. It has been a whipsaw week for equities, which is an indication of how conflicted investors are at present. Equities
 have been so strong of late that it makes little sense to abandon the asset entirely, but a sense that things have run too far, too fast is hard to shake off. 

Few of the FTSE 100 have managed to eke out any gains, with a 2% drop for the index prompted by heavy losses for the big names in the banking and mining sectors. The former have suffered on fears of a lower interest rate environment – the ECB might have been a one-off, but the Fed’s dovish turn this week confirms that we have a trend on our hands, which will hurt banking profits. Meanwhile growth concerns have hurt mining stocks, although given the strength seen in the likes of BHP and Rio Tinto of late this looks more like a bout of profit-taking.