The pound is holding its position despite uncertainty in Westminster, with Theresa May offering to resign if MPs vote for her Brexit plan (Tolga AKMEN)

Hong Kong (AFP) – Asian markets were gripped by volatility Thursday as investors grow increasingly worried about the state of the global economy, sending them rushing to safe-haven assets and fuelling talk of possible recession.

The pound was managing to hold its own despite another night of drama in Westminster that saw Prime Minister Theresa May offer to resign if MPs backed her Brexit plan and lawmakers reject a series of alternative options on leaving the European Union.

After a stellar start to the year, equities are beginning to stumble with closely watched sovereign bond yields — key indicators of the state of the economy — flashing a warning.

The yields on government bonds — considered the most watertight investment in times of turmoil and uncertainty — have tumbled around the world while central banks are becoming more dovish on their outlooks.

This is most notable in the United States, where the Federal Reserve has lowered its rate hike expectations and 10-year Treasury bond yields are below those of three-month notes. The last time this happened was before the 2008 global financial crisis.

“We are worried about the short term because the Fed is as dovish as they can be in the short term,” Chris Harvey of at Wells Fargo told Bloomberg TV.

“Interest rates are coming down throughout the globe, fears of recession are starting to go higher. We don’t think those fears are founded — but you have to acknowledge that that’s going to weigh on markets in the short term.”

After a negative lead from Wall Street, Asia markets fluctuated.

Tokyo sank 1.6 percent as exporters were hit by a jump in the safe-haven yen, while Shanghai shed almost one percent.

Seoul dropped 0.8 percent and Taipei eased 0.1 percent, but Hong Kong gained 0.2 percent and Sydney rose 0.7 percent as they recovered from initial selling.

Singapore was up 0.3 percent, while Manila and Jakarta were also in positive territory.

– Day of reckoning –

Against this background, top Chinese and US negotiators held their latest round of trade talks in Beijing Thursday, with hopes the two economic superpowers can find a deal to end their long-running tariffs row.

And Jeffrey Halley, a senior market analyst at OANDA, warned the meetings were “taking on ever more importance”.

“An agreement between both parties is the key macro-economic event for (the first half of) 2019 and will dictate whether we have a slow and low global pullback or if the day of reckoning arrives much sooner and more aggressively,” he said in a note.

The two-day meeting is the first since China put into law new measures seen as an olive branch in the high-stakes stand-off, offering to address key issues including intellectual property and forced technology transfer.

But while US President Donald Trump has voiced hope he could soon hold a signing ceremony with Chinese counterpart Xi Jinping, negotiations have dragged on, leading to worries that substantial differences remain.

On Thursday, China’s commerce ministry spokesman Gao Feng said at a weekly news briefing there was “still a large amount of work remaining to finish”, adding that both sides are “going all out to earnestly negotiate”.

On currency markets, the pound was essentially flat, having swung back and forth Wednesday after May’s offer and then the rejection of eight possible Brexit plans by MPs.

May could now bring her twice-rejected plan back for another vote to avert a no-deal divorce, which most observers say will be economically calamitous.

However, while some hard-line Brexiteers have indicated support for it — days before the new deadline for leaving — the Northern Irish DUP remain steadfast, meaning the premier could still lose.

“May offered to resign… but a sense of uncertainty is growing over what will happen next,” Mizuho Securities said.

In early trade, London rose 0.4 percent, while Paris and Frankfurt were flat.

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: DOWN 1.6 percent at 21,033.76 (close)

Hong Kong – Hang Seng: UP 0.2 percent at 28,775.21 (close)

Shanghai – Composite: DOWN 0.9 percent at 2,994.94 (close)

London – FTSE 100: UP 0.4 percent at 7,219.53

Pound/dollar: DOWN at $1.3172 from $1.3189 at 2100 GMT

Euro/dollar: UP at $1.1255 from $1.1244

Dollar/yen: DOWN at 110.11 yen from 110.51 yen

Oil – West Texas Intermediate: DOWN 26 cents at $59.15 per barrel

Oil – Brent Crude: DOWN 23 cents at $67.60 per barrel

New York – Dow: DOWN 0.1 percent to 25,625.59 (close)

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