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S&P/ASX 200 expected to sink lower amid global market sell off

The S&P/ASX 200 index looks set to trade significantly lower on Thursday after global markets were sold off overnight.

At the time of writing SPI futures are pointing to the benchmark index opening the day a sizeable 2.1% or 135 points lower.

On Wall Street the Dow Jones fell 3% and the Nasdaq also dropped 3%. In Europe the DAX tumbled 2.2% lower and London’s FTSE index dropped 1.4%.

Why were global markets sold off?

Investors were quick to hit the sell button last night after the bond market flashed a troubling signal about the U.S. economy.

According to CNBC, the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate. This is a bond market phenomenon that has been a reliable indicator of economic recessions a number of times before.

In response to this, investors became worried about the state of the U.S. economy and scrambled to get hold of long-term safe haven assets.

So much so, they pushed the yield on the benchmark 30-year Treasury bond to a new record low on Wednesday.

Gold also benefited from the flight to safety. The spot gold price is up 0.9% to US$1,527.30 an ounce at the time of writing.

Amongst the worst performers on U.S. markets were bank shares. Which could be an indication that the likes of Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) are set for a disappointing day of trade.

Oil prices sink.

But it won’t just be ANZ and CBA potentially trading lower on Thursday. Energy shares such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) look set to be sold off again after oil prices sank lower.

According to Bloomberg, the WTI crude oil price has fallen 3.8% to US$54.95 a barrel and the Brent crude oil price has dropped 3.7% to US$59.06 a barrel. Traders hit the sell button due to demand concerns following the recession indicator.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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