The American stock exchange on Tuesday suffered heavy sale
The us markets on Tuesday suffered a strong selloff, losing more than 3% in key indexes. The main trigger for the decline was the dynamics of the debt markets in the United States. The yield of government bonds with longer maturity were lower yields than “short” securities. This often happens during economic downturns, but, technically, this inversion is not a sign of recession. The Central Bank may raise rates above long term levels to prevent overheating.
This fits our case, as the States at the same time got the advantage in the beginning of the year from the tax incentives, accelerated global growth and low global interest rates.
In this case, it is appropriate to talk about what the causes and symptoms of the recession is reversed, and the main reason lies in the weak economic performance. There are no signs of a dangerous slowdown, the fed still have time to change the policy.
In the beginning of the year sale of long-term government bonds (which causes a rise in their yields) was one of the reasons for the weak performance of markets.
Yesterday has developed several short-term adverse factors that exacerbated the decline:
• the weakening of hopes for a breakthrough in trade negotiations with China;
• increased demand for security before the rest day on Wednesday;
• rollback after unsuccessful attempts to overcome resistance that would not yield in October and November.
It is too early to consider the inversion of the yield curve as a warning bell of recession. Ahead this week – the publication of the us Beige book survey of economic evaluations in the regions, as well as access data on the labor market.
Signs of the coming recession to be found in economic reports, not the indicators yield curve. In addition, the markets are now very sensitive to comments from fed officials.