Yesterday, we saw a more significant inversion of the US 2s10s yield curve indicating that investors have become more concerned about an US recession 1-2 years down the road. Based on yesterday's release of the consumer confidence indicator from the Conference Board, it is difficult to see the recession near-term. Current situation jumped to a new cycle high and while
the expectations component dropped, it remains relatively high (at the same level as the averages in 2017 and 2018) and significantly higher compared to the drop early 2019. Consumer confidence is not the best leading indicator but a recession needs some element of negative animal spirits effects, which is not present yet, at least. The consumer side of the US economy still looks solid, but manufacturing is struggling.
the expectations component dropped, it remains relatively high (at the same level as the averages in 2017 and 2018) and significantly higher compared to the drop early 2019. Consumer confidence is not the best leading indicator but a recession needs some element of negative animal spirits effects, which is not present yet, at least. The consumer side of the US economy still looks solid, but manufacturing is struggling.
Normally, we do not listen closely when former Fed members speak on monetary policy but former NY Fed President Bill Dudley's column yesterday caught our attention. Dudley basically argues that the Fed should not ease monetary policy trying to offset the negative economic impact from Trump's trade war. In other words, the Fed should not support the economy even if it is on the brick of a recession. Although Dudley is no longer serving at the risk, his comments are undermining the Fed's independence and giving firepower to Trump when he argues that the Fed works against him.
On Brexit, more stories that a possible solution to the current deadlock could be a combination of a downscaled sector-by-sector backstop and perhaps trusted trading schemes are emerging. The Financial Times writes that PM Boris Johnson knows that at some point he has to face the more hard core Brexiteers supporting the view that Johnson has a more pragmatic approach. The opposition has realised it is not possible to bring down the government in a no confidence vote right now, as moderate Conservatives will simply not bring their own government down until much closer to the deadline. Instead, the opposition will try to block a no deal Brexit through legislation .
