“Historically speaking the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from 6 to 18 months from today…” said Tom Essaye in a note on Wednesday. Click here to read the full article.
What’s in Today’s Report:
Futures are sharply lower as investors digest historical moves in the bond market amid disappointing economic data.
The 10s-2s yield spreads in the U.S. and U.K. inverted for the first time since the financial crisis while the 30-Yr Bond yield hit fresh lows, further stoking fears of a looming recession.
Chinese Industrial Production (4.8% vs. E: 5.7%), and Retail Sales (7.6% vs. E: 8.5%) both missed expectations as did Eurozone Industrial Production (-2.6% vs. E: -1.5%), adding to the downside pressure on global equities this morning.
Today, there is one second-tiered economic report: Import and Export Prices (E: -0.1%, -0.1%) but because it can offer insight on inflation trends, the release could potentially move markets, as if it runs hot, it could further invert the 10s-2s yield curve spread which is one of the key factors weighing on markets today.
To that point, investors will be closely focused on the bond markets today as the historic inversion of the 10s-2s spread and the drop to new lows for the 30-year yield will likely weigh on risk assets as the odds of a looming recession just increased significantly.
What’s in Today’s Report:
Futures are in the red and Treasury yields are extending the week’s declines amid continued unrest in Hong Kong, growing fears of a financial crisis in Argentina, and more broadly, rising concerns about the global economy.
The German ZEW Survey was terrible with Business Expectations hitting a 2011 low of -44.1 while the U.S. NFIB Small Business Optimism index was a modest upside surprise with the headline beating expectations at 104.7.
The most notable moves this morning are in the bond market where the 30-Yr Treasury is threatening to open with a record low yield below 2.10% while the 10s-2s spread fell below 5bp earlier this morning underscoring the risk-off money flows across asset classes. Gold is also notably up well over 1.5%, trading at fresh multi-year highs.
Today, the focus will remain on the crowded macro landscape as the market has been largely driven by overly cautious investor sentiment over the past few days however there is one economic report to watch ahead of the bell: CPI (E: 0.2%).
Bottom line, if headlines remain negative regarding Hong Kong, Argentina, and global growth, then it will be very difficult for stocks to rally today.
“The worst of it may be over but, I’d be surprised if the pullback is over. I think we’ll go back and likely take a look at some of this week’s lows simply because the issues that have really been…” said Tom Essaye.
“The worst of it may be over but, I’d be surprised if the pullback is over. I think we’ll go back and likely take a look at some of this week’s lows simply because the issues that have really been the underlying causes…” Click here to read the full article.
What’s in Today’s Report:
Futures are modestly lower following a quiet weekend as civil unrest in Hong Kong weighed on investor sentiment.
Protests in Hong Kong, which have been ongoing for weeks, intensified over the weekend as all flights out of Hong Kong have been canceled. The turmoil is just adding to general geopolitical concerns and that’s pushing bond yields lower, which is why stock futures are down. The 10 year Treasury yield broke below 1.70% this morning and is trading as of this writing at 1.68%.
Economic data was sparse over the weekend and there was no new news on U.S./China trade. The next event in this drama is whether the September trade talks still occur (for now the answer is “yes” but that could change at any minute and if it does, stocks will drop).
Today the calendar is quiet as there are no economic reports and no Fed speakers, but any China related headlines will move markets.
Copper, a barometer for the global economy, drops to a 2-year low on trade war fears
“The combination of a disappointing Fed and an escalating trade war appears to be too much for this fragile global economy. The summer breakdown in copper…” said the Sevens Report’s Tom Essaye. Click here to read the full article.
What’s in Today’s Report:
Futures have recovered from overnight losses that were spurred by a weaker than expected yuan fixing by the PBOC and are now higher with EU markets as easier than expected central bank policy overseas is helping offset trade war angst and Forex concerns.
The Reserve Banks of New Zealand and India, and the Bank of Thailand all eased policy more than expected overnight triggering dovish money flows across asset classes underscored by new highs in gold (+1% to over $1500/oz.) and a global bond rally.
Economically, German Industrial Production was -1.5% vs. (E) -0.4% which largely contradicted yesterday’s solid Manufacturers’ Orders print.
There are no economic reports to watch today but there is one Fed official scheduled to speak: Evans (9:30 a.m. ET) and there is a 10 Year Treasury Note auction at 1:00 p.m. ET which could move markets, especially considering the 10s-2s yield spread is testing the lows of the year this morning, below 10 basis points.
Aside from those events, investors will remain focused on any new developments regarding the trade war as the latest tariff announcement (last Thursday) was the main source of the recent spike in volatility.
Wall Street reactions to China trade escalation marked by fear, uncertainty
“It’s not good, obviously. I think that it really surprised a lot of people and I think it underscores that this is not a problem that’s going to be solved in the near-term…” said Tom Essaye, a former trader who founded “The Sevens Report” newsletter. Click here to read the full article.
U.S. markets rebound after China moves to strengthen yuan
“Going forward, stabilization in the U.S.-China trade war is now the most important key to broader market stabilization,” analyst Tom Essaye said in a note to clients. Click here to read the full article.
