Category Archives: Economy

Yield Curve Inverts For The First Time Since 2007: Recession Countdown Begins

The most prescient recession indicator in the market just inverted for the first time since 2007.

https://www.zerohedge.com/s3/files/inline-images/bfm960.jpg?itok=c0gP8hQC

Don’t believe us? Here is Larry Kudlow last summer explaining that everyone freaking out about the 2s10s spread is silly, they focus on the 3-month to 10-year spread that has preceded every recession in the last 50 years (with few if any false positives)… (fwd to 4:20)

As we noted below, on six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal. 

And here is Bloomberg showing how the yield curve inverted in 1989, in 2000 and in 2006, with recessions prompting starting in 1990, 2001 and 2008. This time won’t be different.

https://www.zerohedge.com/s3/files/inline-images/prior%20inversions.jpg?itok=BgnEMjCQ

On the heels of a dismal German PMI print, world bond yields have tumbled, extending US Treasuries’ rate collapse since The Fed flip-flopped full dovetard.

https://www.zerohedge.com/s3/files/inline-images/bfm14B0.jpg?itok=Ez0lIVd_

The yield curve is now inverted through 7Y…

https://www.zerohedge.com/s3/files/inline-images/bfm1EA4.jpg?itok=xPH6zVO8

With the 7Y-Fed-Funds spread negative…

https://www.zerohedge.com/s3/files/inline-images/bfm2864.jpg?itok=HqnSx1RR

Bonds and stocks bid after Powell threw in the towell last week…

https://www.zerohedge.com/s3/files/inline-images/bfmA98E.jpg?itok=D4zUXHf3

But the message from the collapse in bond yields is too loud to ignore. 10Y yields have crashed below 2.50% for the first time since Jan 2018…

https://www.zerohedge.com/s3/files/inline-images/bfm5670.jpg?itok=rocy5sKV

Crushing the spread between 3-month and 10-year Treasury rates to just 2.4bps – a smidge away from flashing a big red recession warning…

https://www.zerohedge.com/s3/files/inline-images/bfm36A8.jpg?itok=3cfUyMJ1

Critically, as Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator, James Bianco, president and eponym of Bianco Research LLC notes today. On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal. 

Bianco concludes that the market, like Trump, believes that the current Funds rate isn’t low enough:

While Powell stressed over and over that the Fed is at “neutral,” . . . the market is saying the rate hike cycle ended last December and the economy will weaken enough for the Fed to see a reason to cut in less than a year.

https://www.zerohedge.com/s3/files/inline-images/bfm1B73_0.jpg?itok=iZGfa7C7

Equity markets remain ignorant of this risk, seemingly banking it all on The Powell Put. We give the last word to DoubleLine’s Jeff Gundlach as a word of caution on the massive decoupling between bonds and stocks…

“Just because things seem invincible doesn’t mean they are invincible. There is kryptonite everywhere. Yesterday’s move created more uncertainty.”

Source: ZeroHedge

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10Y Treasury Yield Tumbles Below 2.50% As 7Y Inverts

The bond bull market is alive and well with yesterday’s bond-bear-battering by The Fed extending this morning.

10Y Yields are back below 2.50% for the first time since Jan 2018…

https://www.zerohedge.com/s3/files/inline-images/bfmCA1F.jpg?itok=_jgnif7R

…completely decoupled from equity markets….

https://www.zerohedge.com/s3/files/inline-images/bfm51AD.jpg?itok=s4YZh3r-

The yield is now massively inverted to Fed Funds…

https://www.zerohedge.com/s3/files/inline-images/bfm8BAA.jpg?itok=hEx0M8LV

With 7Y yields now below effective fed funds rate…

https://www.zerohedge.com/s3/files/inline-images/bfm5F7C.jpg?itok=yYvetY6-

Source: ZeroHedge

US Department Store Sales Lowest Since 1992 (Retail REIT and CMBS Alert!)

The US Commerce Department reported that Department stores are a “wipeout.”

E-commerce continue to wipeout brick and mortar store sales.

https://confoundedinterestnet.files.wordpress.com/2019/03/screen-shot-2019-03-15-at-11.59.42-am.png?w=621&h=277

At the same time, e-commerce sales continue to rise.

https://confoundedinterestnet.files.wordpress.com/2019/03/screen-shot-2019-03-15-at-12.00.35-pm.png?w=621&h=282

It’s not the end of the world for bricks and mortar shopping. Consumers still eat out at restaurants, use fitness clubs, bars, etc. But, it does cause a rethinking of retail REIT and CMBS valuation and growth projections.

https://confoundedinterestnet.files.wordpress.com/2019/03/wipo.jpg?w=625

Source: Confounded Interest

Economists Cut Global Growth Forecast In Half, Admit Slowdown “Has Taken Us By Surprise”

This is probably the last chart that Mario Draghi wants to see.

Bloomberg economics’ global GDP tracker has been downgraded to its slowest pace since the financial crisis, with world economic growth slumping to 2.1% on a quarterly basis. That’s down from 4% in the middle of last year.

https://www.zerohedge.com/s3/files/inline-images/Screen%20Shot%202019-03-11%20at%2011.13.57%20AM.png?itok=RBdADjv_(enlarge)

And while there’s a chance that a US-China trade deal, the Fed’s “pause”, and a fading of the pressures plaguing Europe might stave off a global recession, Bloomberg economists Dan Hanson and Tom Orlik said the risks appear to be tilted toward the downside. “The risk is that the downward momentum will be self-sustaining.”

“The cyclical upswing that took hold of the global economy in mid-2017 was never going to last. Even so, the extent of the slowdown since late last year has surprised many economists, including us.”

To be sure, the economists aren’t the only ones lowering their outlook on global growth. Last week, the OECD joined the IMF in slashing its 2019 growth forecast, cutting its projection for aggregate global growth to just 1%, just over half of its previous outlook of 1.8%.

While Draghi’s gloomy outlook and decision to push back the timeline for ECB rate cuts last week sent a shock through markets, some ECB officials are apparently still desperately trying to reassure the world that everything is going to be just fine (despite a dearth of economic data implying the opposite).

Executive Board member Benoit Coeure said in an interview with Italian newspaper Corriere della Sera published Monday that “we are still seeing robust economic growth, though it’s less strong than before.”

“It will take longer for inflation (moar money printing) to reach our objective, but it will get there. We are reacting to the developments we have seen so far.”

And although Jerome Powell said during an interview with 60 minutes last night that the US economy is “in a good place”, a raft of economic data, including Friday’s shockingly disappointing jobs report, would suggest otherwise.

The extent of the slowdown in recent months has taken many economists by surprise. But as more central banks opt to retreat into the safety of stimulus, or at least back off their hawkish rhetoric, we’ll see if disaster can be averted once again.

Source: ZeroHedge

Alarm! Europe’s And US Bond Volatility Grinding To A Halt (Precursor To Recession)

European bond volatility (according to the Merrill Lynch 3-month EUR option volatility estimate) has plunged to the lowest level on record.

https://confoundedinterestnet.files.wordpress.com/2019/03/dyingvol.png?w=623&h=353

A similar chart for the US bond market is the Merrill Lynch Option Volatility Estimate for 3-months shows exactly the same thing. The US bond market is grinding to a halt.

https://confoundedinterestnet.files.wordpress.com/2019/03/move3.png?w=624&h=449

Note that the US MOVE 3-month estimate hit a low in May 2007, just ahead of The Great Recession of 2007-2009.

Alarm!

Source: Confounded Interest

***

Stocks End Week With Five Days Of Declines

  • U.S. stocks almost clawed their way to break-even, shaking off concerns over slowing global growth, a weak hiring report in the U.S., and disappointing China trade data.
  • S&P fell 0.2% as did the  Nasdaq, and the Dow nudged down 0.1%.
  • For the week, the Nasdaq declined 2.5%, while the S&P 500 and the Dow each slipped 2.2%.
  • Among industry sectors, utilities (+0.4%) and materials (+0.2%) gained the most on Friday, while energy (-2.0%) and consumer discretionary (-0.7%) were the biggest underperformers.
  • 10-year Treasury yield fell is down about 1 basis point to 2.63%.

US Consumer Credit Storms Above $4 Trillion, As Credit Card Debt Hits Record High

After a few months of wild swings, in January US consumer credit normalized rising by $17 billion, in line with expectations, following December’s $15.4 billion increase. The continued increase in borrowings saw total credit storm above $4 trillion, and hitting a new all time high of $4.034 trillion on the back of a America’s ongoing love affair with auto and student loans, and of course credit cards.

https://www.zerohedge.com/s3/files/inline-images/household%20credit%20feb%202019.jpg?itok=WshxuMrd

Revolving credit increased by $2.6 billion, a rebound from December’s downward revised $939 million, and rising to $1.058 trillion, a new all time high in total credit card debt outstanding.

https://www.zerohedge.com/s3/files/inline-images/revolving%20credit%203.7.jpg?itok=gqAtEPB-

There was barely a change in the monthly increase in non-revolving credit, i.e. student and auto loans, which jumped by $14.5 billion, up from the $14.4 increase in December, and bringing the nonrevolving total also to a new all time high of $2.977 trillion.

https://www.zerohedge.com/s3/files/inline-images/nonrevolving%20credit%203.7.jpg?itok=c0raI5Wl

And while January’s rebound in credit card use may assuage some concerns about the sharp slowdown in spending in the end of 2018 and start of 2019, and the subsequent plunge in retail sales, as the household savings rate surged by the most in years, one place where there were no surprises, was in the total amount of student and auto loans: here as expected, both numbers hit fresh all time highs, with a record $1.569 trillion in student loans outstanding, an impressive increase of $10.3 billion in the quarter, while auto debt also hit a new all time high of $1.155 trillion, an increase of $9.5 billion in the quarter.

https://www.zerohedge.com/s3/files/inline-images/student%20auto%20loans%20feb%202019.jpg?itok=gUBIx0_-

In short, whether they want to or not, Americans continue to drown even deeper in debt, and enjoying every minute of it.

Source: ZeroHedge

ADP Employment Gains Slow Dramatically As Small Business Cut Most Jobs SInce 2013

https://martinhladyniuk.files.wordpress.com/2017/10/rules-for-a-happy-marriage.jpg?w=398&h=282

ADP has dramatically revised January’s job gains upward to +300k but February’s print came in at a slightly disappointing +183k (below the 190k exp).

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/2019-03-06_5-23-08.jpg

Small business (1-19) saw job losses (-8k) in February and Education (-2k) was the only industry to see job cuts.

This is the biggest drop in Small Business jobs since Dec 2013…

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/2019-03-06_5-26-56.jpg

“We saw a modest slowdown in job growth this month,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. 

“Midsized companies have been the strongest performer for the past year.   There was a sharp decline in small business growth as these firms continue to struggle with offering competitive wages and benefits.”

Mark Zandi, chief economist of Moody’s Analytics, said,

The economy has throttled back and so too has job growth. The job slowdown is clearest in the retail and travel industries, and at smaller companies. Job gains are still strong, but they have likely seen their high watermark for this expansion.”

Source: ZeroHedge