Curve Inversion
While yield curve inversions were not all followed by recessions in the past (e.g. 1998) they remain a decent predictor of an economic downturn ─ the last three U.S. recessions were all preceded by yield curve inversion. So why is an inverted yield curve often followed by recession? A higher fed funds rate (which raises the short-end of the yield curve) can be a problem for interest sensitive sectors of the economy such as business investment, the housing market and even consumption of big ticket items such as durable goods.
Low long rates, often a result of investor concerns about the economic outlook and lower inflation, can hurt financial institutions which make some of their profits by borrowing short-term and lending long term. In other words, yield curve inversions are not favourable to financial intermediation. As today’s Hot Chart shows, it’s no coincidence that inverted yield curves are often followed, albeit with a lag, by a moderation in credit and hence slower GDP growth. (NBF)
The gradual flattening of the 10-2 curve has stalled in recent weeks while bank credit growth has accelerated.
Here’s a close up of recent weekly trends (up-to-date to yesterday) also showing no negative trends in credit demand:
U.S. Levels Criminal Charges Against Huawei The Trump administration unveiled a sweeping set of criminal charges against China’s Huawei Technologies in its latest salvo against the telecom giant.
(…) The U.S. also unsealed charges in a separate case accusing Huawei of stealing information from T-Mobile US Inc. about a phone-testing robot, “Tappy.” The contours of the 10-count indictment, returned on Jan. 16, were first reported by The Wall Street Journal and grew in part out of civil lawsuits against Huawei, including one in which a Seattle jury found Huawei liable for misappropriating robotic technology from T-Mobile’s Bellevue, Wash., lab.
Huawei offered bonuses to employees who were successful in stealing confidential information from other companies, U.S. prosecutors alleged, adding that the alleged conspiracy against T-Mobile wasn’t limited to rogue employees but a companywide endeavor. (…)
EARNINGS WATCH
- Apple Set to Delve Into Disappointing Quarter
- Nvidia Lowers Guidance on Weakness in China, Cloud Computing
- Caterpillar’s Profit Outlook Dims
- 3M Co. (MMM) Tops Q4 EPS by 3c, Revenues Beat; Lowers FY19 EPS Guidance
- Whirlpool (WHR) Tops Q4 EPS by 50c, FY19 EPS Guidance Misses
- Allergan (AGN) Tops Q4 EPS by 14c, Offers Q1 and FY Guidance, Approves $2B Buyback
- Rockwell Automation (ROK) Tops Q1 EPS by 22c, Maintains FY EPS Guidance
- Verizon Communications (VZ) Tops Q4 EPS by 3c, Revenues Miss; Provides FY19 Outlook
Some high profile names are negative but others are doing ok so far…From Grant’s yesterday:
The S&P 500 Equal Weight Index is trouncing the cap-weighted version YTD, putting up a total return of about 7.5% against 5.2% [for the S&P 500]. That ~230 basis point gap is the largest in 27 years.
1 thought on “THE DAILY EDGE: 29 JANUARY 2019”
I dug into patent disputes yesterday, eventually reviewing WIPO & The Hague Evidence Convention, which sets up international rules for patent infringement action and trial discovery procedures. It seems very few cases actually end up providing evidence of wrong-doing. That said, the current trade war and concept that China is involved with massive cyber attacks doesn’t seem to be based on actual evidence. Nonetheless one can imagine that in a highly competitive world of employee disclosures, there are routine exchanges of patent-like details that are lumped into the grey area of “known information”. I suspect this part of the trump trade war will prove as stupid as the giant notes scrawled onto boltons disclosure about 5000 to Columbia — 3 words he was going to be able to not remember at a press conference where he wasn’t going to discuss what was clearly bait for reporters that love to play games …
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