Global Yield Curve Inversion Spells Doom For The Economy -

Global Yield Curve Inversion Spells Doom For The Economy

Nov 19, 2018Jeremy ParkinsonFinance, No picture0

Global Yield Curve – Stocks Continue To Rebound On Friday

Stocks rallied slightly on Friday. S&P 500 and the Russell 2000 both increased 0.22%. This latest weakness in FAANG and Nvidia crashing 18.8% was from weak guidance. The 0.15% decline in the Nasdaq was impressive.

CNN Fear and Greed index was steady at 10 which is extreme fear. Big potential catalysts for stocks to move higher are a dovish Fed and stocks being oversold.

A main problem is those are occurring because growth is slowing. The stock market rallied without the typical leaders. Consumer discretionary, communication services, and technology fell 0.54%, 0.39%, and 0.11%. This isn’t sustainable.

The biggest winners were utilities and real estate which increased 1.36% and 1.31%.

Global Yield Curve – Fed Rate Hike In December Gone?

We’ve been hearing about how the Powell led Fed is different. Mainly because it will hike rates despite the volatility in stocks.

That seems to be wrong. Recent economic weakness and decline in stocks is beginning to take the December hike off the table.

The Fed’s Harker stated he’s not convinced a December rate hike is prudent. Furthermore, Kaplan said global growth is going to be a bit of a headwind. Finally, Clarida said not to expect a big pickup in inflation next year.

The Fed doesn’t want to hike into a slowdown. Problem is it already did that with its most recent hike. I’m interested if this pause in hikes takes the others in 2019 off the table or if the hike is just delayed a couple months.

In the best case scenario, the Fed stops hikes for 12 months until the slowdown dissipates and then starts to hike again. It’s possible to avoid a recession.

Chances of a hike in December fell from 72.3% to 65.4%. That’s not a huge move, but it’s below the all-important 70% threshold. The Fed doesn’t hike when the percentage is below 70.

Now economic data needs to come in better than expected. Or the Fed needs to make hawkish statements to increase the odds. That’s highly unlikely since growth is weakening and the Fed just made 3 dovish statements.