The U.S. Yield Curve Inverts, Relief Rally In Equities Fizzles, Weak Data Stokes Fears In Asia

Global stocks rebound as trade tensions thaw but the relief rally fizzled when the U.S. yield curve went into a full inversion. Recession fears are heightened around the world.
Thomas Hughes

The U.S. Futures Fall As The Yield Curve Inverts

The U.S. futures were slightly higher in early trading but fell hard when the yield curve inverted. The yield curve, a measure of the spreads of U.S. bonds of all durations, is a well-regarded indication of economic health. The inversion, a sign of impending recession, occurred early Wednesday morning when the yield on the 10-year fell below the yield for the 2-year. The yield-curve signal has been accurate 100% of the time since 1978 and indicates a recession within 18 months. All major indices are down about -0.90% with the NASDAQ Composite leading at -0.95%.

Financials were among the hardest-hit stocks this morning. The banks have a harder time making money with an inverted curve and declining-rate environment. Bank of America, Citigroup, and JP Morgan are all down about -3.0%. Shares of Macy’s are also moving lower. The company reported a big miss for the 2nd quarter as deep discounting bites into revenue. Shares of the stock fell -12.%. Performance Food Group reported a solid quarter with revenue and EPS above consensus. The bad news is guidance was weak and weighed on prices in early trading.

European Markets Head Lower

European indices are down hard at midday on Wednesday. The relief rally driven by Tuesday’s trade news has already fizzled out because risks and fears of a recession are growing. The DAX is down hardest after weaker than expected GDP shows contraction within the EU’s most stable economy. German GDP shrank -0.1%, the good news is all-EU GDP rose 0.2% although slower than expected.

The French CAC is down -1.90% while the FTSE 100 is down only -1.30%. Sentiment in the UK is bolstered by word U.S. and UK officials were working on a partial trade agreement to be implemented November 1st. The UK is slated to leave the EU with no deal in place on October 31st. In stock news, shares of infrastructure Balfour Beatty surged nearly 8.0% after it reported strong results. Infrastructure equities have been outperforming the broader market all year and through the recent market downturn.

Asia Up On Trade Optimism, Chinese Data Is Weak

Asian markets closed broadly higher on Wednesday after trade optimism sparked a global rebound. The Nikkei advanced nearly a full percentage point to lead the market. The Korean Kospi came in at 0.65% while the Shanghai and Hang Seng both lagged. In China, Industrial Production slowed to 4.8% as the effects of the trade war drag on activity.

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