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Macroeconomic & Geopolitical

Inversion Obsession

16 August 2019 - 4 min read

The three things you need to know this week: Yield curve briefly inverts, some U.S. tariffs are delayed and ECB stimulus expectations rise amid fears of a sustained slowdown.

Overview

Yield Curve Inversion: The 10-year U.S. Treasury yield briefly traded below the two-year yield, inverting that part of the curve for the first time since 2007. The measure is closely watched as a recession indicator. The last five 2/10 inversions have eventually led to recessions. Some key macro drivers of the inversion include concern the Fed has been too slow to lower rates and the risk of a spillover of the global growth slowdown to the U.S. The 30 year U.S. Treasury yield hit an all-time low and traded below 2%.

Tariff Delay: The imposition of an additional tariff of 10% on approximately$300 billion of Chinese imports is being delayed until December 15 for certain articles. Products are mainly technology focused and include cell phones, laptops, video game consoles, computer monitors, as well as certain toys, apparel and footwear. While President Trump hopes to avoid being labeled a scrooge during the Christmas shopping season, he also cited a positive call with the Chinese as a reason for the delay.

ECB Stimulus Expectations Rise: Finnish central banker Ollie Rehn said the ECB should announce a package of stimulus measures that exceeds investors' expectations at its September 12 meeting. He mentioned the possibility of improving bank loan terms, adjusting the current rules governing QE to increase bond purchase capacity and didn't rule out adding equity purchases.

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