Market Monitor 3/2019

The US bond market shot up due to surprisingly poor economic data and led to an inverse US yield curve (long bond yields lower than short bonds). An inverse US interest rate curve has historically led to a recession in the US 15 months later. However, there were exceptions where a recession did not occur.

Will it be an exception this time? This fact is supported by the still very good consumer sentiment in combination with the still very robust labor market and the low inflation. It should be noted that consumption is more important to the US economy than the production of industrial goods. Interest rates and yields will remain low until growth accelerates again.

It should also be considered that the trade dispute between the US and China created an uncertainty, making businesses and consumers less willing to invest and spend. In China and, as a consequence, in Europe, this trade war had an additional impact, as the Chinese economy was already in a slowing down phase, with restrictive lending combating high levels of debt. With the currently relaxed monetary policy of the major central banks and possibly soon signed trade agreements, companies can plan and invest again. In some places, this will lead to growth impulses.

However, a lot has already been anticipated and a “buy the rumor and sell the fact” correction is to be expected.