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June 13, 2022

Stock Market Plunges Near Bear Territory and Bond Markets Briefly Invert, Signaling Possible Economic Contraction

The tweets are flawless, though. Thanks, NeverTrump!

Hey National Review, I'm going to take all the extra money I'm making this year and send it right to you. How's that sound?

Global stocks and government bonds plunged again on Monday and the dollar hit two-decade highs as red-hot U.S. inflation fuelled worries about even more aggressive policy tightening in a big week for central banks.

Underscoring concerns that tighter monetary conditions may cool the U.S. economy to the point of bringing on a recession, the gap between U.S. two- and 10-year Treasury yields inverted on Monday for the first time since April, an occurrence that can herald an economic contraction.

An inversion in bonds prices means that people don't expect longer-term bonds to pay very well, because they expect the future economy to be in recession.

An inverted yield curve occurs when short-term debt instruments have higher yields than long-term instruments of the same credit risk profile.

An inverted yield curve is unusual; it reflects bond investors' expectations for a decline in longer-term interest rates, typically associated with recessions.

The article notes that it's a "reliable" indicator of a coming recession.

After inverting, the yield curves did "correct" back to the more normal situation of the ten year bond having higher yields than the two year bond.

U.S. two-year Treasury yields rose above 10-year borrowing costs on Monday - the so-called curve inversion that often heralds economic recession - on expectations interest rates may rise faster and further than anticipated.

Fears the U.S. Federal Reserve could opt for an even larger rate hike than anticipated this week to contain inflation sent two-year yields to their highest levels since 2007.

But a view is also playing out that aggressive rate hikes may tip the economy into recession.


June 13 (Reuters) - U.S. two-year Treasury yields rose above 10-year borrowing costs on Monday - the so-called curve inversion that often heralds economic recession - on expectations interest rates may rise faster and further than anticipated.

Fears the U.S. Federal Reserve could opt for an even larger rate hike than anticipated this week to contain inflation sent two-year yields to their highest levels since 2007.

But a view is also playing out that aggressive rate hikes may tip the economy into recession.

The gap between two and 10-year Treasury yields fell to as low as minus 2 basis points (bps), before rising back to around five bps, Tradeweb prices showed.


We may already be in recession.

The Atlanta Federal Reserve's GDPNow tool indicates that the economy may be in the opening stage of a recession. The second quarter may post negative gross domestic product (GDP). A weakening again in the third quarter would make it official.

I don't know what he's talking about. The economy already shrank 1.5% in the first quarter. It had initially been estimated to have shrunk 1.4%, but it was later revised down to 1.5%.

Fox Business notes that here.

Therefore a recession is confirmed with a quarter of negative growth in the second quarter.

Unless the Q1 data was revised up by more than 1.5% when I wasn't looking, this guy seems to be out to lunch.

...

What are the things that make Americans feel rich and drive consumer spending? Their home prices, for one. Their access to free cash to spend is another. Home prices will be affected by high mortgage rates. Inflation has eaten into consumer cash reserves already. Consider that families may be paying hundreds of dollars more for gas than they did a year ago. People can never prepare for that kind of shock.

Well yes.

Goldman Sachs says that the Trump Labor Market is about to finally break. Thank to Bidenflation.

Softer company-level hiring expectations and slower GDP growth in the second half of the year point to slower payroll growth in coming months," said Goldman Sachs chief economist Jan Hatzius in a new note on Friday. "Recent anecdotes of hiring freezes and more selective hiring indicate that companies expect payroll growth to slow, and the most recent business activity surveys corroborate these signals."

Hatzius forecasts employment growth of 215,000 jobs per month for the next three months. That is that poised to cool to 160,000 jobs added a month for the ensuing six months.

This slowdown would see the economy's pace of growth job fall more than 50% from current levels; through May, nonfarm payroll growth over the prior three months has averaged 408,000.

And then what's Pop-Pop going to hang his hat on?

Via Instapundit, who also has a couple of links I left behind: One report that home prices are already falling in ten cities, and another report that home prices may fall 15-20% in forty overvalued markets.


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posted by Ace at 03:06 PM

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