US Yield Curve Inversion Talking Points:
- There is a 32% chance of a recession hitting the United States within the next 12-months – but that’s before factoring in the US-China trade war flaring again.
- But this reporting period ended on August 2, before the major plummet in US Treasury yields around the announcement of the Trump tariffs; the 3m10s spread was -8-bps; on August 7, it stood at -32.4-bps. Real-time odds are closer to 40%.
- As US recession fears rise, Fed interest rate cut expectations have soared, with three more 25-bps cuts due in 2019, according to Fed funds futures.
See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.[1][2]
In the first entry in the US Recession Watch series, we concluded that “Summer 2019 is unlikely to be the typically slower trading period that the middle of the year represents. Geopolitical tensions continue to rise across the globe, and the US-China trade war has yet to make meaningful progress towards resolution. As the path forward is uncertain, traders should anticipate rising volatility in FX markets.”[3]
Over the past four weeks, since the last iteration of this report, the possibility of the US-China trade war devolving into an outright currency war have dramatically stoked fears of a major global slowdown. Recent price action in financial markets runs counter to better economic data that was otherwise showcasing resiliency in the US economy.
US Growth Expectations Remain Soft as Data No Longer Surprises
Relative to analysts’ expectations, the US economy has been on better footing: the Citi Economic Surprise Index for the US has improved from –56.3 to -35.1 over the past four weeks. Yet the
