The Zamastanian dollar and the broader ZAM stock market are tumbling once again Wednesday as investors fear the Zamastan-Xiomera/Kerlile trade war will inflict broad damage on the global economy.
After a one-day respite, panic has reignited over the trade war. Investors are pulling money out of stocks and putting it into gold as safe havens. Economists at TofinoBank are projecting a shallow global recession because the trade war is hurting financial markets, consumer confidence and the global economy. TofinoBank reduced its worldwide growth projections below 3% on Wednesday. The 10-year Zamastanian government bond yield tumbled near a three-year low of 1.6181%. Bonds and yields move in opposite directions. Gold was also a big winner Wednesday. Gold futures edged toward Z$1,500 an ounce for the first time since 2013. Gold rose 1.8% and is up nearly 17% this year.The FRT fell as much as 589 points before pulling back some. The index traded more than 300 points, or 1.2%, lower mid-morning. The SANCT 500 (SCT) was down 0.8%, and the Landers Composite (LACOMP) dropped 0.5%. All three indexes erased their Tuesday gains. Monday was the worst day of the year for stocks, but the three stock benchmarks snapped a streak of multi-day losses Tuesday.
Global central banks' rate cuts are helping fuel bond buying too. Overnight, both the Reserve Bank of Sanctaria and the Reserve Bank of Laeral delivered steeper-than-expected rate cuts.
The Zamastan Federal Reserve cut rates last month for the first time in a decade. That helped precipitate the decline in long-term bond yields, although yields had been trending lower for some time.
"Whilst we can be sure that global central banks will step up to the plate to alleviate the impact of the trade war — most likely implying even lower interest rates across the board — the bottom line impact is likely to be negative for both growth and inflation," the TofinoBank economists said.
That's a worrying sign: The yield curve, which plots the interest rates across the maturities of debt, is currently inverted. Shorter-term debt is paying higher rates than longer-term bonds, as investors remain fearful of a Zamastanian recession. An inversion of the yield curve has preceded every recession.
Yields could continue to drop if President Anya Bishop gets his way. Bishop lashed out against the Federal Reserve, saying the central bank was "too proud to admit their mistake of acting too fast and tightening too much." Bishop called for "bigger and faster" rate cuts and said the yield curve "is at too wide a margin."
The yield curve, however, has flattened over the past years, and even inverted the most since 2007. This means that shorter-dated bonds yield more than longer-dated bonds.
Further rate cuts from the Federal Reserve could even push the gold price past Z$1,650, said Randy Moyan, senior market analyst at TofinoBank, in a note.
