Displaying items by tag: recession

(New York)

The big market ruction of the last few days has sent the yield curve inversion to very worrying levels. The spread between three-month bills and ten-year Treasuries has widened to minus 32 basis points. A yield curve inversion has preceded every recession for the last 50 years. “The US has been an island of prosperity in a sea of weakness, but that looks to be ending as the impact on the consumer side from the new tariffs is likely to be bigger than the previous ones”, said a senior portfolio manager at PGIM fixed income.

FINSUM: The last time the yield curve was this inverted was April 2007. That fact alone is major warning sign.

(New York)

While headline economic numbers for the US economy have been good, there are some signs on the margins that things may not all be well. For instance, new data out of the shipping and trucking industry looks poor. The whole US trucking industry is in bad shape because of excess inventory and soft demand. “We’re three months into a freight recession”, says a transport analyst. Relative to last year at this time, there is less demand for capacity and that, coupled with an oversupply of trucks, means there’s little to no spot freight and all truckload prices have come down dramatically”, says the CEO of a freight broker. “Freight as we measure it is growing at less than 1% in 2019”, says the owner of an industry data provider.

FINSUM: So part of this is excess inventory, but another important factor is waning demand for freight, which is a leading indicator of an economic slowdown.

(New York)

The market seems like it is hurdling towards the same conclusion it experienced last year—a big fourth quarter reversal. This time though, it won’t come because of worries over rate hikes, but fears for the economy itself. Stocks have been on an extraordinary run this year with the S&P 500 up over 20% and the Nasdaq up over 25%, but it all looks likely to reverse. P/E ratios have jumped from an average of 13x to over 17x, all at the same time as the global and US economy is looking more vulnerable.

FINSUM: We think a market reversal will likely come in step with economic signals. If a rate cut actually works to stimulate the economy, then it seems much less likely there will be a correction/bear market like last year.

(Munich)

In a very worrying report from the EU< European manufacturing is in a “free fall”. Data from Germany, the bloc’s largest economy, shows that the country’s manufacturing industry is declining rapidly. “In manufacturing, the business climate indicator is in freefall”, said the head of a highly regarded economic research group. The chief economist at Commerzbank added that “there is far and wide nothing to be seen of the second half recovery hoped”, continuing “Germany is in a grey area between a marked growth slowdown and a recession”.

FINSUM: Europe certainly looks headed for a recession (unless the ECB can save it). Will the US catch the economic flu this time, or remain Teflon America?

(New York)

UBS just went on the record warning of a potential bursting bubble in equity markets. The bank’s CEO says that global coordinated central bank easing posed a threat to markets and risked inflating a bubble. “I’d be very, very careful about growing further the balance sheet of central banks”, said CEO Sergio Ermotti. He further explained that current market prices were out of sync with investor sentiment, posing a risk. However, he did say that clients were ready to buy the dips in the market, which was an encouraging sign.

FINSUM: The equity markets remind us a bit of US politics at the moment. There are a lot of people in the middle without a lot of conviction, but those on the sharper ends are driving the whole thing forward.