Yield Curve Inversion Widens Further

Our main focus today is the further inversion of the yield curve. But first, let’s cover the economic data that came out today. 📝

On the housing front, the National Association of Homebuilders index showed sentiment fell for the eleventh straight month to the lowest level since June 2012. As the housing market cools, builders are stepping up their incentives to entice buyers and close deals. 

After years of strength in the sector, they’re now facing headwinds on both sides of the equation. Prices of their completed homes are moderating, but the components of their building costs remain elevated. 🏘️

October’s retail sales came in at +1.3% vs. the +1.0% expected, with strength in auto sales offsetting weakness in general merchandise. Meanwhile, import prices fell 0.4% MoM in October, marking the fourth straight monthly drop. Export prices also fell 0.4% MoM, vs. the 0.8% decline in September.

As the economic data cools, the market’s expectations for a recession continue to grow. As a result, the 10-year 3-month treasury curve continues to widen, hitting its lowest level since 2007. 📉

Meanwhile, Federal Reserve members point to further rate hikes before any “policy pause” can occur. And overseas, the European Central Bank says it will do ‘whatever is necessary’ to get inflation to 2%. That’s likely why the Eurozone is expected to sink into recession within the coming months, with economists warning “it will not be shallow.”

Will the U.S. follow suit with a recession of its own? Only time will tell…but the yield curve is certainly projecting it will. ⌛

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Officials Weigh In On The Economy

Federal Reserve Chairman Jerome Powell delivered a speech to Sweden’s Riksbank on Tuesday, emphasizing the need to be free of political influence. 💬

He’s been consistent in his messaging that the Fed needs to tackle high inflation. However, he reiterated in today’s message that achieving the central bank’s goal will require “tough decisions” that are likely to be politically unpopular.

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Bonds Rally After Slew Of Economic Data

It was a busy day for economic data, with it ultimately sending stocks and bond yields lower. So let’s get into all of it.

Overnight, the Bank of Japan surprised the market by making no changes to its yield curve range. Governor Haruhiko Kuroda said that it hasn’t been long since its December adjustment and that it will take time for measures to impact the market. As a result, it left its interest rate unchanged at -0.1% and reiterated it would maintain its dovish policy to support economic growth.

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