Macro Brief: A look at the one-year/10-year spread
Head of Macro Analysis
Summary: Though there's still much complacency in the market, the risk of recession is rising by the day. For proof, take a look at the US yield curve.
Being objective, we see an accumulation of risks ahead for investors. The most worrying signal is the risk of inversion of the US yield curve. Based on most research papers published by the Fed, we favour the one-year/10-year spread as one of the most relevant leading indicators. Guess what? It inverted last week on March 22 before rebounding slightly to 0% yesterday. Still, it marked the first occasion since 2007 that inversion happened.
Basically, for any investor this illustrates that the risk of recession is becoming very real, but it is certainly a bit too early to panic and rush to safe-haven assets. Based on the past seven decades, the lag between the inversion of the yield curve and the start of a recession is on average 22 months and it often happens that the curve gets back to positive territory before going into contraction again, as happened in 2006-07.
As I strongly believe this time is no different, we need to be prepared for what it is coming. Current market complacency, fuelled by central bank interventionism, cannot last forever and avoid the unavoidable. We are at the end of the business cycle and recession is coming despite all the reassuring words from central bankers.
8:00 ECB, Draghi’s speech
9:00 Italy, consumer confidence index
10:45 ECB, De Guindos
12:30 USD, trade balance
21:30 Fed, George’s speech
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)