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Stocks fell on Tuesday (4) on US stock markets after President Trump confused the truce status of the US-China trade war, while the bond market investors often see it as a safe haven, warning against an expected economic slowdown
The S & P 500 index has fallen by more than 2% and the transport and finance sectors, sensitive to the economic situation, shot the fall.
The bond market alert took place through the so-called yield curve, the difference between short-term US Treasury interest rates, such as two-year bonds, and term bonds. until 10 years old.
When cautious investors seek security, they acquire long-term securities, which raises prices and reduces returns, which is the opposite of the market. prayers. The yield on two-year Treasury notes tends to follow short-term interest rates controlled by the US Federal Reserve (Fed), the central bank of the United States; both things have increased this year.
The difference between two- and ten-year bond yields has fallen to less than 0.12%, its lowest level since the financial crisis. Many badysts believe that it may soon fall to less than zero, a phenomenon that the market calls "reversal".
This jargon may seem relevant only to those who adhere to the securities market. "Recessions are always preceded by reversals, so you can not rule them out saying that this is only a crazy badyst who likes to predict the end of the world," said Vinay Pande, director of strategy . UBS Global Wealth Management Investment Operations
Over the last 60 years, all recessions have been preceded by a reversal of the yield curve, according to an badysis by the Fed's San Francisco. The curve reversals "correctly signaled the nine recessions since 1955 and failed only in one case in the mid-1960s, when a reversal was followed by an economic downturn but not an economic downturn. official recession, "wrote researchers at the US central bank. in March
This is not to say that the next recession is imminent: it may take a year or two before a recession alert in the form of an inversion curve materializes . The phenomenon did not mean that the stock market recovery would end immediately.
The yield curve had already narrowed a few months ago and the stock market had virtually ignored this factor. this time with investors already worried about the global economy and with the effect of the trade war on growth, the warning is perceived differently. The US economy is growing at a steady pace, but the Chinese economy is at the bottom of the decade. The third largest economy, Japan, contracted in the third quarter. The same thing happened in Germany.
The Trump and Beijing government said on Saturday that they had reached an agreement on the suspension of the trade war for 90 days, with the two sides trying to reach a formal trade deal. The S & P 500 index rose more than 1% on Monday after the announcement of the deal.
But a Trump tweet on Tuesday morning seemed to contradict the promise of agreement. was one of the hardest hit segments on the market Tuesday, down more than 4%. A narrower yield curve reduces the profitability of banks, which benefit when the difference between the short-term interest rates they use to finance themselves and the long-term interest rates they use for equities. So-called cyclical companies – which rely heavily on economic growth for their sales and profits – also fell on Tuesday. Shares of airlines such as American Airlines, Southwest and Delta Air Lines were down. The S & P 1500 index of car manufacturers and auto parts makers – another highly cyclical sector – fell by more than 2%, a decline above the overall market decline.
There are several reasons why the evolution of the yield curve is considered a good predictor of recession.
In general, when the health of an economy is good, the Treasury yields are higher than those of short-term securities, which reflects the position of investors. in the following years, there will be economic growth and some inflation. When investors are less confident than the economy and prices will continue to rise, the yield on long-term bonds rises slowly or decreases.
This has happened recently. Despite strong economic growth and an unemployment rate nearing its 50-year low, the 10-year US Treasury yield fell to 2.94% on Tuesday from 3.25% in September. .
And other markets also suggest that the world economy is losing momentum. The price of the oil variety referring to the US market fell by more than 25% from the end of September to
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