Recession fears are creeping back in on Thursday. After a mixed session for major equity indices in Asia and Europe, U.S. markets opened higher only briefly before stalling and losing altitude before noon, with the Dow giving up a 180-plus point gain.
Three key factors are driving investor sentiment today, namely yield curve inversion, central bank commentary, and weak manufacturing data.
Spread between the 2-year treasury rose above the longer-term 10-year benchmark, stoking fears of an economic recession, yet again.
Kansas City and Philadelphia Fed officials separately commented on interest rates and both expressed reluctance to support further cuts given current conditions, a clear negative for equities. Market expectations are at 93% for a September rate cut based on the CME’s FedWatch tool.
U.S. Manufacturing PMI contracted for the first time since September 2009 after the index registered a 49.9 reading for August. New orders fell the most in ten years due to a huge decline in exports, a sign that weak global economic conditions are starting to hurt the U.S. economy.
Traders who were betting against the British pound are not happy today as Sterling jumped to a three-week high against the dollar after German Chancellor Angela Merkel showed willingness to try and resolve the Irish backstop issue over the next 30 days. Her comments signal a possible EU compromise, a positive for UK’s PM Boris Johnson.