Is the U.S. economy entering a recession or not remains doubtful [From YEN Kurazō's newsletter]
From YENKura’s investment newsletter “Real Top Trading” provided by GogoJungle, here is this morning’s distribution.
The market may have fired back at President Trump for treating the market as a toy in his own election campaign; last night’s market rebound might have been the market’s response. Even though the tariff postponement was announced the day before, the Dow fell by about 800 points the next day and did not rebound as before.
The yield curve inverted temporarily between the U.S. 2-year and 10-year Treasuries raised concerns of a recession, which triggered the decline in U.S. stocks. The inversion has since resolved, but historically the U.S. economy has entered a recession about six months to eighteen months after such inversions.
Previously, before the Lehman Brothers collapse, yields were in the low 5% range, but this time they inverted around the mid-1.5% level. The 2-year yield is influenced by U.S. policy rates (the federal funds rate is currently 2% to 2.25%). Meanwhile, the 10-year yield reflects supply and demand and, ultimately, growth rate expectations.
This time, amid high stock prices, funds sought a refuge only in bonds, and with expectations of rate cuts, the 10-year yield dropped sharply—likely contributing to the downturn. Will this really cause a recession? There is still skepticism. The reason is that the lowest yield on the 10-year Treasury was 1.32% in June 2016; it is near a bottom, but the economy does not seem so unstable, and risks do not appear fully realized. Of course, there are many risk factors such as U.S.-China issues and Italy’s fiscal problems. Globally, bond yields are falling, and funds may still be flowing into U.S. Treasuries at just under 2%. This drop in yields seems excessive to me.
The dollar/yen declined, but the euro and kiwi fell while the dollar rose. Dollar/yen volatility has increased. Short positions in the euro and kiwi remain ongoing.
YENKura’s real-time newsletter “Real Top Trading” (Dake Tadashi)as quoted.
The inverted yield curve in the U.S. bond market has raised concerns about a U.S. recession. However, as YENKura points out, given high stock prices that serve as a safe harbor for capital and the fact that the 10-year yield has not yet reached its recent low, it is still premature to call a recession. With the USD/JPY market also unstable, careful observation of future movements is warranted. (Editorial staff)
