One of the biggest question (or the billion question) now is probably if the world and US is heading to a recession as the late cycle is not even a question any longer, as recent ECB and FED turn in monetary policy shows. After a few years of a synchronized global growth (Link) a very sharp deceleration in activity awoke markets and central banks late last years. To make things even scary in the market perspective the famous and widely watched 10 years minus 3 month US treasury curve went through the negative territory also (for the more optimists the 2Y x 10Y is still positive). If not big part of the problem trade wars certainly didn't help a late cycle economy but its hard to tell by how much. So this time is no different many would say. And they are right
However (yes), the timing could be a bit different this time. First there are some signs of stabilization already on OECD composite leading indicators for Europe (who would guess that!!!) and china, with both impacting the world index despite US still weakening. Second, financial conditions has tuned again with improved credit spreads, lower stock volatility and a weaker or stable DXY. And third, the preemptive turn in ECB talks and FED policy rate. Though I think this time is no different and we will certainly have a milder recession than the last one, Im getting skeptical that we will have one in less than one year from now.
some charts and comments below...
We are now more in a synchronized stabilization with China leading so far:
Inspired by Yardeni's Boom burst barometer I came up with this index that exacerbates the US cycles. Its basically the heavy trucks sales to jobless claims ratio.
Using a difference to the 30 month average it gives a decent picture when usually recessions start...and we seem still pretty far.
On a broader view If we use a diffusion index with both financial and real activity gauges the same picture appears. There are still some room for this deceleration before it turns the economy into a recession. Its not already at the door.
...FED leading index also the same.
...Stocks and credit spreads have been leading so far.
However (yes), the timing could be a bit different this time. First there are some signs of stabilization already on OECD composite leading indicators for Europe (who would guess that!!!) and china, with both impacting the world index despite US still weakening. Second, financial conditions has tuned again with improved credit spreads, lower stock volatility and a weaker or stable DXY. And third, the preemptive turn in ECB talks and FED policy rate. Though I think this time is no different and we will certainly have a milder recession than the last one, Im getting skeptical that we will have one in less than one year from now.
some charts and comments below...
We are now more in a synchronized stabilization with China leading so far:
Inspired by Yardeni's Boom burst barometer I came up with this index that exacerbates the US cycles. Its basically the heavy trucks sales to jobless claims ratio.
Using a difference to the 30 month average it gives a decent picture when usually recessions start...and we seem still pretty far.
On a broader view If we use a diffusion index with both financial and real activity gauges the same picture appears. There are still some room for this deceleration before it turns the economy into a recession. Its not already at the door.
...FED leading index also the same.
...Stocks and credit spreads have been leading so far.
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