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Inside the Market Why the long bond yield is scarier than an inverted yield curve

A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Equity markets were set to bounce Thursday after Wednesday’s unpleasantness, but a statement from the Chinese government warning of tariff countermeasures to new U.S. protectionist measures caused a retracement.

“Before the Bell: Global markets seesaw as China vows retaliation over U.S. tariffs” – Report on Business

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“Stocks reverse gains after China vows tariff countermeasures” – BNN Bloomberg (video)

“China says the U.S. violated a Xi-Trump consensus with new 10% tariffs — and it will respond with countermeasures” – Bloomberg

“Chinese growth is still far from bottoming out” – Bloomberg

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Market weakness Wednesday was kicked off by an inversion of the U.S. yield curve, but Bloomberg columnist Brian Chappatta argued that the sharp decline in the 30-year bond yield is scarier than the inversion,

“The yield on 30-year Treasury bonds fell Wednesday to 2.0139%, the lowest level ever… This relentless rally at the long end shows that bond traders have completely let go of all fear of rising interest rates, stronger-than-expected economic growth or a sustained rebound in inflation. That should be as nerve-wracking to investors as the prospect of a global economic recession.”

I believe, as I wrote yesterday, that there are other factors involved with bond yields beyond a forecast of future economic growth but still, the market’s pessimism on growth reflected in bond prices is not encouraging for equity investors.

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“Forget the Yield Curve. The 30-Year Treasury Is Scary” – Bloomberg

“Don’t Freak Out about the Yield Curve” – Calculated Risk

“@SBarlow_ROB Levkovich: “One should be more worried when a rapid resteepening occurs, as that is a better signal for an imminent downturn” – (research excerpt) Twitter

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Morgan Stanley remains concerned about global growth and does not expect easing monetary policy to save the day,

“Trade has been impacting corporate confidence and capex. The impacts are non-linear so further deterioration can easily surpass expectations on the downside. We see many important indicators that are near seven-year lows including PMIs, trade volume, and global GDP growth, and think that the Fed's reactive, rather than preemptive, approach may not be enough to turn economic momentum. Underlying corporate credit risks still exist and could come to the fore as the economy slows further. In this environment, if the US were to implement 25% tariffs on all imports from China for 4-6 months and China responds with countermeasures, the global economy will likely enter into a recession in 3 quarters”

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“@SBarlow_ROB MS: "[we] think that the Fed's reactive, rather than preemptive, approach may not be enough to turn economic momentum" – (research excerpt) Twitter

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Tweet of the day:

Diversion: “ How the Invention of Spreadsheet Software Unleashed Wall Street on the World” – Gizmodo

Newsletter: “ Why the current economy has a hint of the ’70s” – Barlow, Globe Investor

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