Depressing signals from world markets

IT was not very long ago that the dread hovering over global financial markets was that things were getting too calm. Just this summer, Federal Reserve officials were fretting over markets being so stable that it might create complacency, and we were writing about a global boom in asset prices. Even if many Americans do not fully realise it yet - though an unnerving drop in a wide range of global markets on Wednesday may have gotten our collective attention - the autumn has brought a rather darker set of worries with a series of dives in global financial markets.

On that day alone, the Standard & Poor's 500 briefly fell into negative territory for the year and the interest rate investors were willing to accept on 10-year US Treasury bonds edged below 2 per cent for the first time since June 2013 (at the close, the benchmark S&P 500 index was down 0.81 per cent, and the 10-year Treasury bond stood at 2.06 per cent). But those moves underlie a bigger story: Many crucial indicators in markets for international bonds, currency and commodities are pointing towards a heightened risk of a worldwide economic slowdown that may be beyond the ability of policymakers to stop. It would inevitably have ripple effects even on the relatively strong US economy.

People who monitor the diverse global markets to understand what the future may hold are closely following indicators such as bond yields. When the economic outlook becomes more gloomy, investors tend to pile money into government bonds of nations viewed as secure, creditworthy places to park their money. Also, when the economic outlook appears worse, investors assume central banks will keep low interest rates in place for longer, so they must accept lower interest rates on even long-term bonds.