### Summary
The recent market sell-off and rising yields are not driven by rising inflation expectations but by rising real yields across the world, signaling a return to pre-Global Financial Crisis conditions.
### Facts
- Real bond yields are returning to their natural state as the easy credit environment since the Global Financial Crisis is reversing.
- Rising inflation expectations typically drive yields, but the recent market sell-off is caused by rising yields for long-term rates.
- Central banks are hiking rates and removing liquidity, reducing the supply of credit and raising interest costs.
- Rising demand for capital and geopolitical tensions are also contributing to the rise in yields.
- Market conditions now are more like they used to be before the Global Financial Crisis, while the post-2008 to 2022 era was the unusual period.
- Rising real rates are expected to impact public spending, household borrowing, and asset values, while pensions and savers may benefit.
- The return to positive real yields is a big shift closer to the historical baseline.
- Despite recession talk, there are few signs of a recession in the US, with GDP growth forecasted at 5.8% for Q3.
### Emoji
- 💸 The era of cheap debt might be over, and it can lead to a big shift for investors.
- 💰 Real bond yields are returning to their natural state.
- 📉 Rising yields for long-term rates are driving the recent market sell-off.
- 🌍 Real yields are rising across the world.
- 📉 The conditions we're seeing now are more like they used to be before the global economy imploded.
- 🏢 Assets boosted by easy credit will need to correct, including real estate.
- 💼 Rising real rates will impact public spending, household borrowing, and asset values.
- 💡 Pensions and savers may benefit from a rising real rate environment.
- 📉 Excess speculation can easily occur if stability requires pursuing significant risk.
- 🚀 The return to positive real yields is a big shift closer to the historical baseline.
- 🔍 Few signs of a recession in the US, with 5.8% GDP growth forecasted for Q3.
### Summary
The global economy is showing signs of decoupling, with the US economy remaining strong and China's economy disappointing at the margin. The recent data suggests that the US economy is resilient, with consumption and other indicators pointing in a positive direction. However, there are concerns about the bear steepening of the US curve and the repricing of the long end of the curve. In contrast, China's economy continues to struggle, with weak data and monetary policy easing. Japan has surprised with positive data, but there are questions about whether the current inflation shift will lead to tighter monetary policy. Overall, there are concerns about a potential global economic recession and its impact on various economies.
### Facts
- 💰 Despite the decoupling of the US and China economies, concerns remain about the negative impact of a China slowdown on global growth.
- 💹 Recent data show that the US economy, particularly consumption, remains resilient.
- 🔒 The bear steepening of the US curve and the repricing of the long end of the curve are causing concerns.
- 🇨🇳 In China, weak data on consumption and investment and declining house prices continue to affect the economy. The PBoC has eased monetary policy.
- 🇯🇵 Japan's 2Q data surprised with strong export growth, but there are concerns about the impact of a potential inflation shift on global yields.
- 🌍 The global economy is at risk of recession, with concerns about the impact on emerging market economies and the US economy.
Despite optimistic economic data and the belief that a recession has been avoided, some economists and analysts believe that a recession is still on the horizon due to factors such as the impact of interest rate hikes and lagged effects of inflation and tighter lending standards.
Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
Recession fears return as a key business survey shows a significant contraction in the UK economy, signaling the detrimental effects of interest rate rises on businesses and heightening the risk of a renewed economic downturn.
Market optimism around the US economy may decline as recent shifts in the Treasury yield curve indicate a potential trigger for a correction or rapid unwind in positions, with investors closely watching Federal Reserve Chair Jerome Powell's upcoming speech.
Fidelity International's Salman Ahmed maintains his prediction of a recession next year, citing the full impact of the Federal Reserve's monetary policy tightening and a wave of corporate debt refinancing as leading factors.
Despite weak economic news and concern over a slowing economy, there is still optimism among investors that a recession is unlikely.
Deutsche Bank strategists warn that the U.S. economy has a greater chance of entering a recession within the next year due to high inflation and the Federal Reserve's aggressive interest rate hike campaign.
The possibility of a recession should not be dismissed by equity investors despite recent stock market rallies, warns economist Michael Darda, who notes that historical data shows that recession typically follows an inversion in the yield curve within an average of 14 months.
The odds of a recession in the US have collapsed, making markets vulnerable to any signs of the economy overheating and contributing to inflationary pressures.
The risk of overestimating the economy is now a real possibility as economic data continues to defy recessionary predictions, but the lagging production side of the economic equation and the deviation between GDP and Gross Domestic Income (GDI) suggest increased risk to the optimistic outlook and a potential recessionary warning.
The yield on the 10-year Treasury note is predicted to decrease significantly for the remainder of this year and in 2024, as economists anticipate the Federal Reserve to loosen its monetary policy and inflation to fall.
Jim Cramer predicts that the upcoming demise of the inverted yield curve will expose all bearish investors as financial failures and that gradually increasing interest rates will not harm the economy if it remains healthy.
The US economy is facing a looming recession, with weakness in certain sectors, but investors should not expect a significant number of interest-rate cuts next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. She points out that leading indicators have severely deteriorated, indicating trouble ahead, and predicts a full-blown recession as the most likely outcome. Despite this, the stock market has been defying rate increases and performing well.
The odds of the U.S. entering a recession by mid-2024 have decreased, but certain regions, such as the West and South, are still more vulnerable due to rapid economic growth, high home prices, and inflation, according to Moody's Analytics. However, a severe downturn is unlikely, and the Midwest and Northeast are less susceptible to a pullback. Overall, the chance of a recession has declined nationwide, but there is still a risk for some metro areas, such as Austin, Boise, Ogden, and Tampa.
Treasury Secretary Janet Yellen and Goldman Sachs may be optimistic about a "soft landing" scenario for the US economy, but the author remains skeptical due to factors such as a deeply inverted yield curve, declining Leading Economic Indicators, challenges faced by the consumer, global growth concerns, and the lagging impact of the Fed's monetary policy, leading them to maintain a conservative portfolio allocation.
Stronger-than-expected U.S. economic data, including a rise in producer prices and retail sales, has sparked concerns about sticky inflation and has reinforced the belief that the Federal Reserve will keep interest rates higher for longer.
The Federal Reserve Bank of New York's recession probability tool, which examines the difference in yield between the 10-year U.S. Treasury bond and three-month bill, suggests a 60.83% probability of a U.S. recession through August 2024, indicating that stocks may move lower in the coming months and quarters. However, historical data shows that U.S. recessions are typically short-lived, and long-term investors have little to worry about.
Entrepreneur Jaspreet Singh warns that signs of a potential recession in America include labor shortages, inflation-driven spending, and high interest rates, with economists predicting that the country may start feeling the effects of a recession by the second quarter of 2024. Singh advises Americans to educate themselves about saving money and investing to prepare for the possible downturn.
The Federal Reserve officials signal that they believe they can control inflation without causing a recession, with forecasts of higher economic growth and unchanged inflation outlook.
The bond market's recession indicator, known as the inverted yield curve, is likely correct in signaling a coming recession and suggests that the Federal Reserve made a major mistake in its inflation policy, according to economist Campbell Harvey. The yield curve, which has correctly predicted every recession since 1968, typically lags behind the start of a recession, with the average wait time being 13 months. Harvey believes that a recession is imminent due to the Fed's tight monetary policy and warns against further interest rate hikes.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
The US economy has triggered the fourth and final signal for a potential recession, and historical data suggests that recessions will become more frequent in the future due to government interventions and other factors such as inflation, tightening monetary policy, oil price spikes, and tight government budgets.
Economists are accurate at predicting recessions in the near future but become less precise as the prediction timeline extends, according to a study by an economist at the Federal Reserve Bank of St. Louis.
Deutsche Bank's economists are still predicting a US recession despite the ongoing resilience of the economy, pointing to rapidly rising interest rates, surging inflation, an inverted yield curve, and oil price shocks as the four key triggers that historically have caused recessions and are currently happening.
The bond yield curve, a reliable predictor of economic downturns, is warning of serious trouble ahead, as it has accurately predicted the last six recessions since 1978. The inverted yield curve, which is currently being observed, indicates investor panic and adds to the sense of a looming recession.
The summer's positive economic indicators, such as lower inflation and strong job numbers, have led to optimism that the US will avoid a recession, but factors such as a potential auto strike, the resumption of student-loan repayments, and a government shutdown could contribute to a downturn. The combined impact of these factors, along with others like higher interest rates and oil prices, suggests that a recession may be looming.
Investors and experts differ on the timing, but many believe a recession is inevitable in the near future due to falling consumer confidence and a slowing economy, prompting discussions about the Federal Reserve's interest rate moves.
The recent surge in U.S. government bond yields, with prices falling, has raised concerns about the stability of the bond market and the economy, potentially leading to more bank failures and market upheaval.
DoubleLine Capital founder Jeff Gundlach warns that soaring bond yields indicate a recession is imminent in the US.
Falling bond prices in the US, resulting in higher Treasury yields, suggest that a recession might be approaching, according to investor Jeff Gundlach, who is closely watching the upcoming jobs report for further signs.
Falling U.S. bond prices and the rapid normalization of the Treasury yield curve are signaling that a recession may be imminent, according to DoubleLine Capital founder Jeff Gundlach, who will be closely monitoring the September jobs report for further clues.
Billionaire investor Jeffrey Gundlach warns Americans of an impending recession due to the rapidly inverting U.S. Treasury yield curve.
The likelihood of the US avoiding a recession has decreased, as two factors, including a surge in interest rates and the potential for resurgent inflation, could push the economy into a downturn, says economist Mohamed El-Erian.
The U.S. economy is showing mixed indicators, with rising interest rates, high inflation, and increased consumer spending, leading economists to question whether a recession is on the horizon.
Long-term bond yields have surged as the Federal Reserve reduces its bond portfolio and the U.S. Treasury sells debt, contrary to the expectations of Wall Street and investors worldwide, but a research paper written by a University of Michigan student six years ago accurately predicted this scenario.
The collapse in Treasury bonds is one of the worst market crashes in history, with experts predicting that a recession could hit in 2024 and 10-year Treasury yields could breach 5.5%.
Goldman Sachs economists warn that the recent surge in US Treasury yields will hamper economic growth and pose financial risks, though the bank does not predict a recession; they estimate a 0.5 percentage-point blow to US GDP over the next year.
Economists are predicting that the U.S. economy is less likely to experience a recession in the next year, with the likelihood dropping below 50% for the first time since last year, thanks to factors such as falling inflation, the Federal Reserve halting interest rate hikes, and a strong labor market.
The growing confidence in the U.S. economy's ability to avoid a recession has led to another selloff of government debt, pushing the 10-year Treasury yield towards 5%, its highest level since 2007.
The U.S. economy is facing risks in 2024 as inflation remains high and interest rates are historically high, leading to concerns about a potential recession; however, the Federal Reserve is optimistic about achieving a soft landing and maintaining economic growth. Economists are divided on whether the Fed's measures will be effective in avoiding a severe recession, and investors are advised to proceed cautiously in their financial decisions.
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