More News, Rumors and Opinions Friday Afternoon 8-23-19
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Don961: Indicators of a recession in the global economy
Friday 23 August 2019
Capitals / agencies
The bond market has begun to send signals of concern to investors around the world, in an unconventional development, which often precedes a downward trend in global economic performance.
This was not the only case of an imminent global recession, coupled with the contraction of Europe's major economies as well as disappointing industrial activity data.
However, the current situation between the two largest economies around the world (the United States and China) is witnessing a strong state of trade frictions that would have a negative impact on global markets.
US Bonds
The first sign of the yield curve is that the yield curve between the US short-term (2-year) and long-term (10-year) Treasuries was reversed for the first time since 2007, a historically worrying sign that a recession is looming.
The 30-year Treasury yield also continued to fall to its weakest level ever. The difference between the yields of two-year UK government bonds maturing after 10 years fell to zero, meaning the yield curve is reversed, a second sign of recession fears.
As investors seek safe haven assets, led by government bonds, those negative assets are jumping to new record highs.
According to the Bloomberg Barclays index of negative yields, the value of those government debt rose to the level of $ 16 trillion last week, the highest level ever.
Economy of Germany
In another sign, Germany's economy, Europe's largest, contracted in the second quarter of this year by 0.1 percent compared to 0.4 percent growth in the first three months of 2019.
For Europe's second-largest economy, UK GDP fell 0.2 percent in the quarter to June, compared with 0.5 percent growth in the first three months of the year.
Britain's second-quarter contraction was the worst performance since the fourth quarter of 2012 and is a further sign of a growing recession.
Meanwhile, China's economy last month suffered a loss of economic momentum as industrial production growth slowed to its lowest pace since February 2002 along with growth in retail sales, but at a slower pace, a fifth sign of an impending recession.
Trade war
With the recent escalation between the United States and China, Goldman Sachs stressed that the trade war would increase the risk of a recession in the United States.
Recent economic data has also pushed Bank of America to the same conclusion: increasing the likelihood of a US recession to 30 percent within the next 12 months.
The US bank cited the reversal of the yield curve between 10-year Treasury bills and 3-month Treasury bills, as well as the performance of three of the five economic indicators following the business cycle.
These three indicators (car sales, industrial production and total hours worked) are at levels previously recorded before the previous recession.
Industrial production
According to official data, industrial production in the United States fell in July, contrary to analysts' expectations due to the performance of the manufacturing and mining sectors, which is the sixth alarming sign.
Manufacturing activity in Philadelphia fell this month, but the drop came less than analysts had expected.
These developments have caused panic within the global financial markets, leaving investors losing overall risk appetite and rushing to safe assets, a trend that prevails in times of high uncertainty at all levels.
The Dow Jones industrial average has seen notable losses in the past few sessions before losing 800 points last week, its worst daily performance in 2019.
On the other hand, gold benefited from this situation by gains that pushed the metal to the highest level in nearly six years, and the currencies of the Japanese yen and the Swiss franc are one of the winners as safe-haven currencies. link
Don961: Industrial activity continues to paint a bleak picture of the global economy
Friday 23 August 2019
Capitals / agencies
Industrial activity around the world continues to paint a depressing picture of the global economy, amid concerns over slowing growth and trade frictions.Despite the performance of the industrial sector, the situation in its service counterpart has often been slightly better to support economic activity for the private sector in general.
According to data from the market research firm Market Research, the preliminary reading of industrial activity data in the euro zone and Japan was released in August as performance in the world's largest economy shrank for the first time since the global financial crisis.
There is a limit in the reading of industrial purchasing managers between the expansion and contraction in the activity of 50 points, any number above this separation point means an expansion in activity, while the reverse indicates contraction.
The US manufacturing PMI fell below 50 for the first time since September 2009 to 49.9, from 50.4 last month and 50.5 expected.
In terms of the situation in the euro zone, industrial activity recorded 47 points during the month compared with 46.9 points recorded last month and 46.3 points were expected by analysts.
France and Germany account for about half of the eurozone's gross domestic product (GDP), so industrial activity figures in both countries are weighted to create an image of the region that has been under pressure in recent months from trade tensions and the Brexit predicament.
For Europe's largest economy, Germany's manufacturing PMI remained stuck in contraction this month to 43.6 points, though contrary to expectations for a decline to 43.1 points from last month's reading of 43.2 points.
According to the survey, industrial and service companies' orders are falling at the fastest pace in six years and more companies now expect production to decline rather than rise in the next 12 months, the first time since 2014.
Germany is on the verge of a recession after the second-quarter contraction amid firm signs of the end of the country's golden decade.
France saw an improvement in industrial activity, shifting from deflation to an abrupt expansion of 51 points this month.
This reading is better when compared to analysts' estimates of 49.5 points and higher than 49.7 points recorded last July, which means that both were pointing to the continued contraction in industrial activity in France.
Looking at Japan, manufacturing activity continues to contract for the fourth consecutive month, with Japan's manufacturing PMI scoring 49.5 points in August, failing to reach expectations for 49.8 points.
The reading shows a slight improvement from last month's final reading of 49.4 points, although still below the boundary between expansion and contraction.
According to the survey, new production and orders fell at a slower pace than the previous month while export orders fell strongly.
Japan's economy expanded at a better-than-expected pace in the second quarter of this year year on year, to grow by 1.8 percent. link
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