The US stock market opened sharply lower yesterday afternoon and the yield on the US 10-year Treasury dropped to 3.752% due to fears of a potential US economic recession, prompting expectations of more aggressive interest rate cuts by the FED. However, a stronger-than-expected ISM services PMI somewhat alleviated these concerns by signalling a rebound in US services activity. Despite this, US Treasury yields remain at their lowest level in a year.
I'm hesitant to overinterpret the notion that global interest rates will rapidly decline, given that a single contrary data point could easily reverse market trends. However, the indicators increasingly point towards a lower interest rate environment, particularly as oil prices continue to drop despite rising tensions in the Middle East.
Swaps continue to fall this afternoon with 5 years now very close to the levels we saw at the new year, 2 years dropping nearly xzx10bps and 1 year 11 bps. It’s time that lenders stepped up and reduced their rates quickly.
What a difference a single data set can make! Who would have thought that a standard jobs report from the U.S. on Friday would send world stock markets into a tailspin? After months of the FED indicating that interest rates wouldn't drop and might even increase, it now appears they could rapidly reverse course.
Global stock markets plunged this morning due to concerns over a potential recession in the US economy following that jobs/labour report on Friday. The FTSE 100 experienced a decline of over 2% during early trading, with the FTSE 250 dropping by more than 3%. The £ dropped to $1.273, nearing a one-month low, as investors expect the BOE to cut interest rates faster. Worries about a US recession also made British government bond yields hit multi-month lows. Markets now predict the BOE will make two quarter-point rate cuts by December.
Heard in the queue for the (new) CO-OP in Equatorial Taffs Well this morning:
“How do you think Wales will do tomorrow butt?”
“I’m cautiously pessimistic.” 🤷♂️🏴🏉
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