Trump Slams Fed Chair Powell for ‘CRAZY INVERTED YIELD CURVE!’

Andrew Cummings
August 19, 2019

The U.S. Treasury yield curve temporarily inverted on Wednesday, with two-year note yields exceeding 10-year yields, signaling growing concerns over a recession in the world's biggest economy.

"The uncertainty as to how the dispute will play out on both the trade and technology fronts means businesses are waiting to see how the uncertainty resolves rather than invest", he said, according to the text of his keynote speech to be delivered at a conference in Sydney on Thursday.

Asian and European markets put in a mixed performance a day after fears of a looming global recession triggered an 800-point drop in the Dow - one of the biggest one-day sell-offs on Wall Street ever.

You may have been surprised to see headlines today saying the yield curve has inverted for the first time in over a decade, because you've probably seen the occasional headline over the past few months about the yield curve already being inverted.

With the yield curve on the 2-year/10-year bond yields inverting for the first time since 2007 on Wednesday and the hashtag #TrumpRecession trending No. 1 nationally on Twitter, President Donald Trump took a shot at one of his favorite whipping boys: Federal Reserve Chair Jerome Powell.

"That tells you we are in a headline market where investors will react quickly to what the flavor of the day is", said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

The markets' decline wasn't only felt in the U.S. After reports of the German economy shrinking in the second quarter, the Stoxx Europe 600 fell 1.7%, while the German DAX dropped 2.2%. -China trade war, Brexit and geopolitical tensions.

As investors switched on a risk-off mode and resorted to long-term, safe-haven assets, such as USA treasury bills, gold and low-risk currencies, the price of gold rallied and the 30-year treasury bond yield hit an all-time low of a bit over 2 percent. The inversion of the yield curve also affected the British debt market, which also further increased the pressure on its stocks.

Neil Wilson, Chief Market Analyst for commented: "The 3mo10yr curve has been inverted for some time already but the fact that 2s10s has also gone this way is a massive red warning light for the USA economy".

As bond markets flashed concern about recession on Wednesday and major stock indices cratered, U.S. President Donald Trump put the blame squarely on the Fed for continuing to raise rates through the end of a year ago.

On Wall Street, futures for the Standard & Poor's 500 Index and the Dow were up 0.5%. China's industrial production rose by just 4.8 percent in July, lowering than expectations of 5.9 percent growth and much lower than June's 6.3 percent.

Investors have been plowing money into the safety of USA government bonds for months amid growing anxiety that weakness in the global economy could sap American growth. "We're outside of the earnings season and markets are being batted around by news". This was after the vitamins and supplements maker slashed its final dividend by 55 per cent, as its full-year profit dropped 23.6 per cent to $53.4 million.

No one knows when a bear market begins, but if the United States and China don't reach a trade agreement soon, the chance of one is highly likely.

Brent crude was down 0.8%, at $59.03 a barrel, after falling 3% in the last session, while USA crude fell 0.5% to $54.96 a barrel, having dropped 3.3% in the previous session.

The yield curve inversion also suggests that investors expect the Federal Reserve to keep cutting short-term interest rates in an effort to boost the economy, Rehling says.

The dollar recovered from early weakness against the safe-haven yen on the better-than-expected USA retail sales. The Japanese yen strengthened 0.1% versus the greenback at 105.83 per dollar, having firmed 0.8% on Wednesday. The euro edged up to $1.1142 from $1.1138.

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