- Asian stocks are flashing green, Japan’s Nikkei is reporting 0.80% gains.
- The US yield curve has reversed inversion seen last week.
- The spread between the US 10- and two-year yields has widened to 8 basis points.
Asian stocks are better bid on Monday morning as the US bond market is no longer flashing signs of an economic recession.
As of writing, Japan’s Nikkei index is up 164 points or 0.80% and the stocks in Australia and New Zealand are adding 0.76% and 0.46%, respectively. The Shanghai Composite index is also up 0.33% and Hong Kong’s Hang Seng is reporting 1.24% gains. Meanwhile, South Korea’s Kospi and the S&P 500 futures are up 0.45% each.
The US President Donald Trump and top White House officials said on Sunday that they saw little risk of recession. “We’re doing tremendously well, our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with the money,” Trump said on Sunday.
President Trump, however, sounded less optimistic on the trade front by stating that he is not ready to make a deal yet.
Even so, stocks have picked up a bid, possibly tracking the normalization of the US treasury yield curve. The difference between the yields on the US 10 and two-year Treasury notes currently stands at eight basis points. The spread had dropped to -0.007 basis points last week – the first inversion since 2007.
Yield curve inversion, being a classic signal of a looming recession, triggered risk aversion and a flight to safety last week. However, some observers believe the bad news has been priced in and the increasing dovish central bank expectations could bode well for riskier assets in the near term.
The Federal Reserve is expected to cut rates by 50 basis points before the year-end, having reduced rates by 25 basis points on July 31. Meanwhile, the European Central Bank is also expected to cut rates further into the negative territory in September.
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