Market news 16 August 2019

US

• The US announced that it will delay the start of new tariffs on almost half of $300bn worth of Chinese goods from 1 September to 15 December, thereby mitigating the impact on the Christmas shopping season for US consumers. The implementation of 10% tariffs would be delayed on items including cellphones, laptops and computers, and will not to be introduced at all for some products based on health, safety and national security factors. Meanwhie, China has said that that despite the deferral, it will still need to take “necessary countermeasures”.
• Fears over a global recession were raised after the 10-year yield on US Treasury bonds fell below the the 2-year rate, causing a pheonomon known as ‘yield curve inversion’. While an inversion of the yield curve says little about timing of a recession, ranging from 3 months to almost 2 years, a yield curve inversion has preceed every recession over the past 50 years. The yield on 30-year Treasury bonds also fell below 2% - a historical low.

China

• In China, activity data showed that the economic slowdown continued in July. Annual growth in fixed asset investment (5.7% year-to-date), industrial production (4.8% YoY) and retail sales (7.6% YoY) all slowed, and were weaker-than-expected.  Total social financing was also notably weaker, on the back of weak bank loans and a contraction in shadow credit, as well as the liquidity squeeze steming from the government’s takeover of Baoshang bank in May. The continuation of weak economic data raises the probability that authorities will step up efforts to stimulate the economy as efforts so far have failed to have a material impact.

Germany

• Preliminary data showed that the German economy contracted in Q2 2019, triggering concerns over eurozone’s largest economy falling into recession as global trade tensions remain elevated. German GDP fell by 0.1% over the quarter, taking the annual rate down to 0.4% - the weakest annual pace since early 2013. While historical data revisions exacerbated the weak result, the statistical body noted that construction and net exports were weak over the quarter.