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Another trading week is over. The S&P500 index made another all-time high on Friday, although just a week ago many thought a serious correction was ahead. Let’s try to look a little deeper. Isn’t it time to think about a possible crisis in the USA?
S&P500
Where did that come from? After all, everything seems to be going well. Indices are rising, the economy is pumping money, the labour market is expanding and the coronavirus is in retreat.
It’s worth looking at US government bond yields. Yields on 10 year bonds have fallen sharply and yields on 2 year bonds have risen. The narrowing of the spread between these assets has been going on since early March. What could that mean? Ideally, it could mean that market participants do not want to look at the long term and assume a monetary policy tightening much earlier than planned. Such manoeuvres could push the economy into recession. It is already clear that markets cannot grow without money printing and a non-zero interest rate.
History is also important. Over the last 40 years a decrease in the spread between 10-year and 2-year government bonds in the USA has always presaged a recession.
There is another thought that begs the question. The US Fed is now actively buying government bonds to finance the record federal deficit. But it is not very clear why the Fed is buying up mortgage bonds in record amounts. After all, according to reports there are no problems in the US housing market. These bonds could have been sitting quietly in banks and generating a certain income.
But the Fed has bought them at the maximum amount since the start of the year for some reason. Probably, there is some information that these bonds will lose their value in the near future. After all, everyone remembers 2008, when a large number of borrowers simply could not service their mortgages.
8.00 German import price index for June
15.00 FOMC Member Williams to speak
16.00 US University of Michigan Consumer Confidence Index for June
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