Worry, without overreacting

Posted by: Paul Donovan

02 Oct 2019
  • Asian equities are lower after yesterday's weak US ISM manufacturing sentiment poll. Globally, the gap between sentiment and reality is the widest since 2012. Trade taxes worry manufacturers. When asked, manufacturers say they are less than happy about life, but their actions are more positive. Investors should worry about trade taxes. They should not panic about sentiment.
  • Global bond yields rose yesterday. Some yield curves steepened. Do steeper yield curves predict an economic boom? They do not, any more than inversions predict a recession. Weaker bond markets reflected a poor Japanese auction. This reflected fewer "captive" investors (who buy for non-economic reasons). Such investors distort bond markets and bond market signals.
  • In the interminably tedious EU-UK divorce process, UK Prime Minister Johnson speaks at the Conservative Party conference. Exit proposals to the EU are expected. There is no certainty among investors about the proposals, if the EU will agree a deal, if the British Parliament will pass a deal, or if Johnson will remain as prime minister.
  • A trio of Federal Reserve speakers entertains us today, including New York Fed President Williams (an economist, not a lawyer - increasingly rare in central bank circles). Fed comments are likely to attract more attention than ECB comments.

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