Global stocks decline. Global stocks are down this morning following a strong day for U.S. markets fueled by upbeat trade headlines. The S&P 500 Index rose 1.5% yesterday after the United States announced it would delay some tariffs scheduled to go into effect September 1, and resume trade talks with China in September. The news sparked hope of progress in U.S.-China trade talks, but there has been a lot of back-and-forth over the past several months between the two countries. We’re hopeful that a trade deal will be reached soon, as both parties have a lot to lose in a drawn-out trade dispute.
Yield curve inverts. Treasury yields fell further, and a closely watched part of the yield curve flashed a historically very early potential recession signal for the first time this economic cycle. The spread between the 2-year and 10-year Treasury yields fell as low as -2 basis points (-0.02%), turning negative for the first time since 2007. We’ve monitored the flattening yield curve closely this year, as yield curve inversion has typically preceded economic recessions, although often with a relatively long lead. While inversion on this point of the curve is discouraging, we believe yields are more of a reflection of global growth fears and attractive Treasury valuations relative to other sovereign debt, instead of a near-term recession signal. We’ll provide our takeaways on the recent yield curve inversion later today on the LPL Research blog.
Disappointing data. Germany’s gross domestic product (GDP) declined 0.1% in the second quarter, according to preliminary data, while the Eurozone’s GDP rose 0.2% in that same period. Separate data showed China’s industrial production slowed to a 17-year low in July, while China’s retail sales growth slid. Even if the United States and China reach a trade deal, there has clearly been some economic damage inflicted worldwide, and the global economy may take some time to recover.
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