Asian markets are down in the wake of concerns over the US recession, but Fed's Evans says the economy is in a good position

The main stock market indices in the Asia / Pacific region fell sharply on Monday due to fears of a possible recession in the United States. The move is fueled by the reversal of part of the Treasury yield curve. However, a key member of the federal open market committee said the US economy was in a strong position.

When bond traders lost confidence in the strength of the US and global economies after the US Federal Reserve lowered its forecast last Wednesday, they aggressively bought long-term US government debt. This decision sufficiently reduced long-term debt yields to reverse the return between 3-month and 10-year returns. This is considered an important recession indicator.

At Friday's close, the 3-month Treasury bill yield was 2.459%, while the 10-year Treasury note yield was 2.437%, according to Refinitiv TradeWeb data. It was the first time in twelve years that the spread was reaching a negative territory.

"I want to point out that the gap between three months and ten years is important because the Fed has done a lot of research into the best predictions for future recessions and has found it preferable. . Hill added, however, that while the recent reversal does not guarantee a recession, BMO's work on the Cleveland and New York Fed models suggests a 30 percent recession probability over the next 12 months.

The chief economic advisor to President Donald Trump, Larry Kudlow, has acknowledged that the gap between 3-month yield and 10-year yield is the most important difference to watch out for.

The first actions on prices strongly suggest that this speech will control the price action on Wall Street on Monday. At the moment, we want the US stock markets to open up sharply.

Fed talks about Evans

Speaking at the Credit Suisse Investment Conference in Hong Kong, the chairman of the Chicago Federal Reserve Bank, Charles Evans, made a series of remarks on the Fed's policy and the US economy. Here are the highlights:

Evans said the US economy was in a strong position. He further added that he was not worried about inflation and that the federal funds rate was almost neutral. In addition, he said monetary policy was neither accommodative nor restrictive at this stage. He also said that the inversion of the yield curve is very narrow.

More importantly, Evans said it was a good time for the US central bank to pause and take a cautious stance even if the economy remained in a strong position. His comments were among the first to be made by policymakers after the Fed's decision last Wednesday to signal the end of its tightening following the abandonment of the rate hike plan in 2019.