US futures more calm to start the day, Treasuries still signaling caution

Author: Justin Low | Category: News

Mixed tones in markets hints at some indecision ahead of European trading

E-minis 15-08
  • S&P 500 futures +0.5%
  • US 10-year yields down 2 bps to 1.559%
  • US 30-year yields down 3.3 bps to 1.985%
  • Gold up 0.3% to $1,520.88
  • USD/JPY flat at 105.91
Is the fear yesterday overdone?

I reckon that's the key question markets will have to answer today. We're likely shifting to a new paradigm in markets where there will be more focus on why central banks around the world are easing amid further deterioration in global economic data.

To recap yesterday's key headlines:

1. China industrial production fell to its weakest annual pace in over 17 years
2. German economy shrank in Q2, hints at likely recession to follow
3. UK yield curve inverts for the first time since 2008
4. US yield curve inverts for the first time since 2007

On paper, those are not soothing headlines for risk but when you see something like #TrumpRecession trending worldwide and almost every corner of the world talking about it, you have to question if this has been blown out of proportion.

I mean it's not like we're headed for a global recession tomorrow.

That said, the shift in the market paradigm to be more focused on the global economic slowdown from hereon should keep risk on the defensive side in the big picture. In turn, that should see haven flows slowly build stronger over the long-term.

However, in the mean time it's not like risk assets won't get to enjoy their day in the sun. For today, I reckon the best spot to watch is still the bond market. If yields start climbing back to flat/positive levels on the day, we could be in for a decent recovery in risk.

It may still seem unlikely, but that's something to be wary about.

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