Updated December 05, 2018 09:16:29

Photo: The US bond market is pointing to a recession, as short-term (2-year) rates are starting to rise against longer-term (10-year) yields. (Reuters: Lucas Jackson)

Wall Street suffered its biggest plunge since the October sell-off — amid lingering concerns about the trade war and the bond market signalling a potential economic slowdown.

Investors have doubts about what was actually agreed between the United States and China when they struck a 90-day trade truce at the G20 summit over the weekend.

While US President Donald Trump boasted about "an incredible deal", China has said very little.

A lack of detail from Beijing left investors wondering if Mr Trump's exuberance was warranted.

The White House said China would start buying farm products from US farmers "immediately", and a "very substantial" amount of American agricultural, energy, industrial, and other products.

In contrast, China has yet to mention what specific goods it would buy.

Mr Trump also tweeted that the 90-day tariff ceasefire could be extended — and if a "REAL deal" cannot be struck, then he will revert to increasing tariffs on Chinese imports.

"If it is, we will get it done ... But if not remember, I am a Tariff Man.

"When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so."

The Dow Jones index plummeted by almost 800 points, or 3.1 per cent, to 25,027.

The benchmark S&P 500 lost 3.2 per cent to 2,700. In dollar terms, it fell by more than $1.1 trillion ($US820 billion).

Meanwhile, the tech-heavy Nasdaq index was hit hardest, tumbling 3.8 per cent to 7,158.

The Nasdaq was heavily weighed down by a drop in Facebook (-2.2pc), Amazon (-5.9pc), Apple (-4.4pc), Netflix (-5.2pc) and Google (-4.8pc) shares.

Collectively, they shed more than $US140 billion in market value, leaving technology stocks back in correction territory.

US recession fears

Also dragging down Wall Street, particularly its banking stocks, were fears of an economic slowdown, as signalled by the US Treasury bond market.

The yield for short-term bonds (two years) rose to 2.8 per cent — surpassing what investors could get from longer-term bonds (five years), which pay a 2.79-per-cent yield.

Normally, long-term rates are supposed to be higher to reflect expectations of continued economic growth.

But when the yield curve flattens or "inverts", as it has now done, it is traditionally an indicator of an economic slowdown.

"Historically there is a good correlation between the yield curve inverting and the timing of the next recession and the bond market has been a big focus for today," Binky Chadha, the chief strategist at Deutsche Bank, said.

The focus now is on the narrowing spread between the two-year (2.8pc) and 10-year yields (2.92pc).

The spread, between the two and 10-year yields, is currently at its narrowest in more than a decade, and its inversion has preceded the past three US recessions.

Australian economic slowdown

ASX futures are pointing to the local share market falling sharply (-1.3pc) at the open, following the weak lead from foreign markets.

The Australian dollar has slipped to 73.4 US cents, 57.7 British pence and 64.7 euro cents at 7:35am (AEDT).

In economic news, the third-quarter GDP figures will be released today.

Reuters-polled economists have predicted economic growth to be 0.6 per cent in the quarter, which takes the yearly GDP growth to 3.3 per cent.

This would be a slight slow-down compared to the previous GDP result, 3.4 per cent growth.

ABC/Reuters

Topics: business-economics-and-finance, markets, stockmarket, currency, australia

First posted December 05, 2018 08:07:20