Spooky Sell Signal
Here are some of the biggest stories from last week:
Dig deeper into these stories in this week’s review.
The International Monetary Fund lowered its global growth forecast for next year and warned of rising geopolitical risks, from wars to trade protectionism. Global economic output will expand by 3.2% in 2025, or 0.1 percentage points slower than previously estimated, according to the IMF’s latest outlook released this week. It left its projection for this year unchanged at 3.2%. The US saw a 0.3 percentage point upgrade to its 2025 growth outlook on the back of strong consumption, while the eurozone’s forecast was slashed by 0.3 percentage points due to persistent weakness in Germany and Italy’s manufacturing sectors.
The IMF also issued a strong warning in its latest outlook, saying that if higher tariffs hit a large chunk of world trade by mid-2025, it would wipe 0.8% from economic output next year and 1.3% in 2026. The cautionary note may be indirectly aimed at Donald Trump, who has proposed imposing a 20% tariff on all US imports and a 60% tax on goods from China if reelected – actions that could prompt major trading partners to retaliate with their own tariffs on US goods.
China unveiled some of the biggest cuts to banks’ benchmark lending rates in years, as the government steps up efforts to boost the economy and hit its year-end target of about 5% growth. The People’s Bank of China said on Monday that the country’s one-year loan prime rate, which is set by a group of big Chinese banks and acts as a reference for consumer and business loans, would be reduced to 3.1% from 3.35% – the biggest reduction on record. Meanwhile, the five-year loan prime rate, which underpins mortgages, would be lowered to 3.6% from 3.85%.
The cuts come after the PBoC outlined steps last month to encourage households and companies to borrow more, including a reduction in the amount of money that banks must hold in reserve – a bid to nudge them to hand out more loans. Traders expect further easing in the coming months, including additional cuts to interest rates and the reserve requirement ratio. But whether that’ll be enough to alleviate China's longer-term deflationary pressures and entrenched real estate crisis remains to be seen. Skeptics argue that authorities have yet to introduce aggressive measures to boost consumer demand, which is seen as a crucial missing element for the economy. After all, making money cheaper to borrow won’t stimulate growth if Chinese consumers remain hesitant to spend…
Another week, another record: the price of gold hit an all-time high of $2,750 an ounce on Wednesday, taking its year-to-date gain to over 30%. There are several factors driving the rally. First, interest rates are falling in most parts of the world, reducing the opportunity cost of owning gold, which doesn’t generate any income. Second, central banks have been snapping up gold to diversify their reserves away from the dollar. In fact, during the first half of this year, central bank buying hit a record high of 483 tonnes, according to the World Gold Council. Third, gold is benefiting from increased safe-haven demand amid heightened economic and geopolitical risks, including slowing global growth, US election uncertainties, elevated China-Taiwan tensions, and ongoing conflicts in the Middle East and Ukraine. Case in point: gold ETFs have seen five consecutive months of global inflows from May to September.
Here’s something odd: US government bonds have nosedived since the Fed’s first rate cut last month. In fact, the last time Treasuries sold off this much as the Fed started lowering interest rates was in 1995. More specifically, two-year yields have climbed 34 basis points since the US central bank reduced rates on September 18. Yields rose similarly in 1995, when the Fed managed to cool the economy without causing a recession. In prior rate-cutting cycles going back to 1989, two-year yields on average fell 15 basis points one month after the Fed started slashing rates.
At the heart of the selloff is a big shift in expectations about US monetary policy. Traders are reducing their bets on aggressive interest rate cuts since the world’s biggest economy remains strong, and Fed officials have been sounding a cautious tone about how quickly they will lower rates. Adding to the market's worries are rising oil prices and the potential for larger fiscal deficits after the upcoming US presidential election. As a result, volatility in Treasuries has surged to its highest level this year, according to the ICE BofA Move Index, which tracks expected changes in US yields based on options.
On the flip side, the US corporate bond market is having a great time as investors bet that the US economy is headed toward a "soft landing" – that dream scenario where the economy slows enough to tamp down inflation, but remains strong enough to avoid a recession. The yield gap between US corporate bonds and Treasuries shrunk to 0.83 percentage points this week – the lowest level in nearly 20 years. The spread between high-yield (or “junk”) bonds and government bonds, meanwhile, is at its lowest since mid-2007. That’s got some fund managers worried that the $11 trillion corporate bond market is too complacent about lingering economic risks or the potential for post-election turbulence. After all, with spreads so low, investors are getting very little protection against a potential rise in corporate defaults – especially considering that overall borrowing costs remain higher than the average in the decade and a half of near-zero interest rates that followed the financial crisis.
General Disclaimer
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.
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Spooky Sell Signal
The ECB Cuts Again
Slowing Disinflation
Golden-Week Rush
China’s Massive Package
The Fed’s Big Rate Cut
The ECB Cuts Again
Banks Turn Bearish On China
Million-Dollar Gold Bar
Bonds Are Back
Black Monday
Diverging Rate Decisions
Still Strong
Smaller Is Better
The Name Is Bond, Green Bond
Landslide Victory
AI-Frenzy Takes a Break
Bye Apple, Hello Nvidia
The Fed Stays Put
An Indian Rollercoaster
The Name’s Bond, Convertible Bond
Nvidia Does It Again
A Small Relief
From Boom To Bust
Higher For Longer
Still Magnificent
Halve And Havoc
Stubborn Inflation
Choc Shock
An End Of An Era
Britain Bounces Back
China's Goal
Bye iCar, Hello iAI
Nvidia Beats Expectations
Germany Overtakes Japan
Riding The Dragon
China’s Falling Behind
India Outshines Hong Kong
Aging Dragon
US Inflation’s Accelerating
Tesla Lost Its Crown
2023 Market Wrap-Up
The Last Samurai
Fed Teases 2024 Rate Cuts
Bond Market's License to Thrill
Cyber Week Bonanza
OpenAI's Leadership Shuffle Drama
Inflation’s Cooling In The US And UK
Back Into Deflation
Triple Hold On Rate Hikes
The US Economy Is Still Flexing Its Muscles
Inflation’s Refusing To Come Down
Investors Are Bracing For A Dip
An End In Sight
Rate Hike Recess
End Of An Era
China's #1 Ambitions Are Fading
Americans’ Piggy Banks Are Running Low
Trying To Break The (Wage-Price) Spiral
China: A Nation In Deflation
Uncle Sam Gets Downgraded
Twin Hikes
Stagnating Dragon
A Tale Of Three Inflation Stories
Silver Is Shining Bright
UK Inflation: Defying Gravity
The Fed Calls A Timeout
A One-Two Punch
Shrinking Dragon
Keep Calm And Carry On
The AI-ffect Of The AI Mania
SLOOS: Crunch Time Looms
Last Republic
LVMH Pops The Bubbly
India Takes The Population Throne
The End Is Nigh
OPEC Drops the Pump
Why Gold Is Glittering
Can't Stop Won't Stop
To Hike Or Not To Hike
China’s An Underachiever
Cash Is King
What Energy Crisis?
The Name’s Bond, Japanese Bond
The AI War Has Begun
Hikes Everywhere
What Recession?
Shrinking Population
Grab Your Box And Leave
A Gloomy Prediction
It's Darkest Before The Dawn
Elon Fires Himself…
Triple Whammy
No More Zero-Covid?
Eight Billion And Counting
Another One Bites The Dust
No Santa Pause
Big Tech, Big Disappointment
The Lettuce Won
Cart