hello and welcome back to the notes and
it's been another rather miserable day
on world stock markets both in Europe
and the US more or less all Fridays
gains that came after the Bank of Japan
told us it was moving to negative
interest rates have now been canceled
out Japan has lost some of its gain
since then if you also take a look at
the oil price its fallen once more but
perhaps most concerning is what's going
on in the bond market if you take a look
at the 10-year Treasury yield you can
see that it's dropped very sharply
today's below one point nine percent
okay it has been lower than that at
various times over the last few years
but it's really quite remarkable that we
are seeing a 10-year yield that low
given that the Fed has now actually
started raising rates and told us that
it's going to keep doing so the people
plainly are buying the 10-year Treasury
and forcing its yield down because there
are negative yields elsewhere but it's
still a startling development if we now
take a look at the bond market from
another perspective and take a look at
the yield curve in other words said the
gap between the yield on the 10-year and
the yield on the two year Treasury often
seems very complicated but the basic
intuition is the wider that gap is the
greater the optimism will is into the
future the greater the belief is that
you'll see growth and inflation and
higher rates into the future therefore
when you see a narrowing as we've seen
now we've got the flattest yield curve
since the crisis year of 2008 that's a
very negative sign it suggests that
people are getting much more concerns
about the risk of a recession here in
the US even if at least for the time
being that the yields on the two and the
10-year Treasury haven't inverted in
what is a very classic recession
indicator now this is a big development
only a month ago it was taken almost as
axiomatic that whatever else happened in
the rest of the world the US would keep
growing we've now seen a lot of research
reports in the last few days from
various brokerages looking at what
recession risk might look like here in
the US they all come down on the notion
I think correctly that the US isn't in
recession yet but the
the risks of it are rising you can see
that in the very concerning is M
manufacturing data which is still very
mediocre you can also see that in the
feds senior loan officer survey which
came out this week and which showed that
standards of loans to companies are
tightening if this proves merely to be a
growth scare if as still seems likely we
can avert a recession then presumably
there should be value from the kind of
levels we are at now if not there is
further for the stock market of all ever
greater interest therefore on the
non-farm payroll data will be getting at
the end of this week