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Falling stock prices and Friday's bond yields were a blow to the Trump administration. Unfortunately, the Russell 2000 index of small-cap companies in the United States, the "Trump Trade" salient 2017, fell by 3.6%.
The 10-year US rate has fallen below the three-month T-bill rate, which means investors want to lock in long-term yields to prevent the Federal Reserve from reducing its short-term interest rates in the near future. slowdown in the economy.
I do not remember the last time the stock market collapsed two days after the Fed took an unexpected position. Stock markets love easy money, and Fed Chairman Jerome Powell promised at Wednesday's meeting of the Federal Open Market Committee.
Inventories rose on Thursday before reconsidering and dropping sharply on Friday. Economic weakness is weighing on the market, with forecasting indicators in Europe and Asia excluding China falling sharply.
Global trade began to contract sharply in the fourth quarter as companies deferred capital investment as a result of the US-China tariff war. At the same time, US households tightened in December, recording the largest decline in retail sales in 10 years.
Rarely in economic history, an American president has done so much good and bad. Donald Trump's expansion was marked by America's boom in 2018, which brought GDP growth to 3% after eight years of the slowest economic recovery in US history.
Contrary to the usual Keynesian reading, which claims that Trump's tax cuts have produced a "sugar consumption", his combination of tax cuts and deregulation has brought back the spirit of small business accounted for more than 100% of jobs. growth last year.
It was both good and bad news. Jobs in small businesses are concentrated at the bottom of the pay scale; large companies have not invested the product of the largest corporate tax reduction in the history of the United States. During the first quarter, share buybacks by companies outpaced capital spending for the first time since 2007. Nevertheless, small business performance has been a triumph for Trump. It was then.
The hiring boom of small businesses hit a wall in February when the United States created only 20,000 jobs. The pool of labor available for low-skilled, low-wage jobs is exhausted and small businesses can not afford the cost of tendering for workers.
As I showed in several past reports, the US household sector shrinks as world trade shrinks.
The weak growth is virtually certain for 2019 and the probability of a recession in 2020 is serious. Investors do not accept a 10-year Treasury Notes yield lower than three-month Treasury Bills than when they fear growth will slow down or reverse and the Federal Reserve will reduce short-term rate.
This is why an inverse yield curve is considered a forecaster of the recession. Of course, this is not the case, but it is an indicator of the state of mind of the market.
In the absence of a quick resolution of the trade war between the United States and China, this year could prove unpleasant for the markets as well as for the economy. President Trump's biggest achievement – the revival of economic growth – is fading just in time for the 2020 presidential elections.
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