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A Bird's Eye View Blog

Fireside Charts: A Dovish Fed, the Trade War Trudges On, the U.S. Yield Curve Extends and Deepens

by : BCM Investment Team | POSTED: Mar22, 2019 | CATEGORY: Equity, Economics, Market Highlights, Fireside Charts

This Friday’s Fireside Charts is one of our favorites in that the charts and data below are forcing us to ask crucial questions about where the market is headed. March Madness indeed! First up, the FED announced on Wednesday that they will not be hiking rates this time around, with zero predicted rate hikes for the rest of the year. This is a highly dovish departure from their December projections.The market saw a rally after this news, which quickly faded when Trump announced tariffs on Chinese goods will stay for a “substantial period of time”. We will likely see even weaker manufacturing reports across the globe going forward. Meanwhile, a look into German and Swiss bond yields. Why are global bond yields so low? Are the foreign bond markets are more in tune with the global economy than here at home? 

 

1. In addition to eliminating any projected rate increases for 2019 and lowering 2020 to one, the Fed is also stopping QE reversal! Here is their plan:

 

 

Source: SMRA/Oxford Economics, as of 3/21/19

 

 

2. Does the trade war trump the FED? (pun intended!)

 

 

Source: Bloomberg, as of 3/21/19

 

 

3. The yield curve inversion has extended and deepened...

 

 

Source: WSJ Daily Shot, as of 3/20/19

 

 

4. Over $9.5 trillion of debt has a negative yield...

 

 

Source: Bloomberg, as of 3/21/19

 

 

5. Given that the average maturity of U.S. Treasuries is 5-7 years, most of the debt is in the inversion (longer maturities have lower rates than shorter maturities).

 

 

Source: Bloomberg, as of 3/21/19

 

 

6. A Dovish FED is putting pressure on the USD which is giving a bid to many commodities.

 

 

Source: Bloomberg, as of 3/20/19

 

 

7. A welcome positive print out of the Philly FED.

 

 

Source: WSJ Daily Shot, as of 3/21/19

 

  

8. German 10 year Bunds just fell to zero (interest rate). Why are global bond yields so low? Are the bond markets are more in tune with the global economy?

 

Source: WSJ Daily Shot, as of 3/21/19

 

 

9. Across the pond, a Dovish ECB weakened the Euro, now the Dovish FED and weak USD give other currencies a bid...

 

 

Source: WSJ Daily Shot, as of 3/20/19

  

 

10. Japan's manufacturing slump continues... (less than 50 is contraction).

 

 

Source: WSJ Daily Shot, as of 3/21/19

 

  

11. Another negative trend...

  

 

Source: WSJ Daily Shot; as of 3/21/19

 

 

In our Fireside Charts posts, including today's blog, it is reiterated time and time again that the U.S. is not an island and we live in a global, intertwined economy. How does this concept lend itself to the current issue of markets ripping up while the global economy slows? Examine the disconnect by reading: The Stock Markets are Ripping Up. The Economy is Slowing. What Could Ultimately Be Wrong? 

 

The Stocks Markets Are Ripping Up. The Economy is Slowing.  What Could Ultimately Be Wrong? 

 

 

 

 

Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.