December 5, 2019
Yesterday we talked about the “V” shaped move in stocks to open December — a sharp down move, followed by a sharp recovery.
We’ve had the same in yields.
As you can see in the chart below, since Monday, the U.S. 10-year government bond yield has done a (near) round trip …
What didn’t move was the market’s expectations on the Fed next week. The fed funds futures market has been pricing in a zero chance of a cut on Wednesday. That hasn’t changed, despite the sharp move lower in stocks and market interest rates to start the week.
But as we know, the Fed already has the peddle to the metal – with three rate cuts this year, and with a resumption of balance sheet expansion. As you can see in the chart below, that has been good for stocks …
Add to this, we now have the BOJ following the lead of the Fed with big, bold fiscal stimulus (5% of GDP). And expect Christine Lagarde’s debut next week as ECB President, to include pleas to European lawmakers for fiscal stimulus. With this backdrop, a formal deal with China would unleash a U.S. (first) and (then) a global economic boom.