For Banks, Signs Of Recession Are Flashing Red

Bond markets did not respond to news of continued U.S.-China trade negotiations.

The Trump administration revealed that some Chinese imports would not be affected by the new 10% tariff Trump will put into effect on September 1. According to Axios, the stock market skyrocketed in response while the bond market continued to push yields down, which is an indicator of an upcoming recession.

For the past year, bonds have predicted economic indicators. The bond market’s lack of reaction to the administration’s announcement may indicate that this small break in the trade war is too small and coming too late to have any real effect.

The 3-month/10-year Treasury yield curve inverted and today, the 2-year/10-year curve inverted. The New York Fed’s recession probability indicator has hit warning level.

Still, the stock market has responded positively to any good news about the U.S. China trade war.

"Talking is good, but there has been a lot of talk since Trump and Xi met in Buenos Aires last November, and not much progress," Lou Brien, market strategist at DRW Trading. "The high level of uncertainty has been quite negative for business planning and spending on capital expenditures, which has in turn caused several important indicators to roll over, such as the ISM indexes, Industrial Production and orders for Durable Goods."

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