Financial markets around the globe were roiled on Friday, stemming from anxiety about an economic downturn after the U.S. yield curve inverted, with the 10-year yield dropping below the three-month bill rate. Those fears stoked a dumping of stocks and other growth-oriented assets and a rush into the yen, gold, U.S. and German government debt and other perceived low-risk investments.
A yield curve inversion has preceded every U.S. recession in the past 50 years.
“On Friday we were looking into the abyss,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC in New York. “Today we are taking a step back.”
Trader sentiment stabilized after Germany’s IFO Institute said its business climate index rose to 99.6, beating a consensus forecast of 98.5 and ending six consecutive months of decline. The IFO data briefly lifted German 10-year yields into positive territory and helped European shares.
They also buoyed the euro, which rose 0.2 percent to a session-high of $1.13315. Against the yen, the single currency at one point surged 0.46 percent to a high of $124.81, having traded as low as 123.875 earlier.
It is unclear whether the mild bounce in the euro and emerging market currencies will be sustained as traders remain wary with the U.S. yield curve inversion persisting for a second trading session, analysts said. “I wouldn’t say the dash for safe assets is over. The tone of general risk-off sentiment will prevail for a while but not to the same extent (as Friday),” Commerzbank strategist Ulrich Leuchtmann said, noting a recession was unlikely in the near term in the euro zone or the United States.
As for the greenback, it was 0.15 percent lower against a basket of currencies. It did not react much to U.S. Attorney General William Barr’s announcement that U.S. Special Counsel Robert Mueller found no evidence of collusion between Russia and President Donald Trump’s 2016 election campaign team.
The dollar was little changed at 109.935 yen after the yen hit a six-week high of 109.7 per dollar earlier on Monday.
The British pound recovered somewhat from earlier losses against the dollar and euro as the UK parliament prepared to try and wrest control of the Brexit process in a series of votes planned for later in the day . Sterling was down 0.24 percent at $1.318 and the euro was 0.43 percent stronger at 85.9 pence in late U.S. trading.