“German bond yields have plunged to historic lows and inflation expectations are collapsing across the eurozone, prompting fears of a gathering recessionary storm.
“The benchmark 10-year bund yield dropped to minus 0.18pc on Thursday and is testing the all-time lows seen during the brief rush to safety after the Brexit referendum. Spanish and Portuguese yields have dropped to record lows.
“A closely watched gauge of inflation expectations – five-year/five-year swap contracts – have collapsed this year and raise concerns that the European Central Bank is losing control. It is signalling a slide into a deflationary quagmire.”
“UK house prices slumped in May as consumer confidence remained subdued, according to a new survey. Property prices dropped 0.2% month on month in May.”
“China’s manufacturing sector slowed more than expected and further signs of stress in the labor market appeared, adding to a weakening currency and financial nervousness on the list of problems faced by President Xi Jinping as the trade war worsens.
“The manufacturing purchasing managers’ index for May slid into contraction at 49.4 and its employment sub-index tumbled to the lowest level since the aftermath of the global financial crisis.”
“U.S. consumption of rare earth compounds and metals relies heavily on imports, which rose to $160 million in 2018, according to USGS. Eighty percent were from China.
“To make it worse, although other countries supply to the U.S. including Estonia (6%), France (3%) and Japan (3%), much of their materials were derived from mineral concentrates and chemical substances produced in China, according to Hui Shan, commodities analyst at Goldman Sachs.”
“South Korea’s central bank kept monetary policy unchanged on Friday but a split vote in the decision provided a firm signal the bank was shifting to a dovish footing as the intensifying Sino-U.S. trade war bolstered the case for more stimulus.
“The BOK is under pressure to join regional counterparts from New Zealand to India in easing policy to tackle growing headwinds, but has so far held back due to concerns about a potential rout in the won, Asia’s worst performing currency this year, and subsequent capital flight risks.”
“Brazil’s economy shrank in the first quarter for the first time since 2016, data showed on Thursday, pushing Latin America’s largest economy closer to a double-dip recession.
“The contraction piled pressure on President Jair Bolsonaro, who was swept into office in January after making market-friendly pledges to boost growth and lift the gloom hanging over the economy since a brutal 2015-16 recession.”
“The Bank of Mexico has dismissed some statements from Moody”s Analytics rating agency that the national economy is in a technical recession, even though it corrected downward the growth for 2019.
“Moody’s, frequently criticized by the government for its unfavorable forecasts to PEMEX and economic growth, ensures that the country’s productive activity in the past two quarters shows signs of contraction.”
“US President Donald Trump is set to slap fresh tariffs on all Mexican imports next month, in a shock move that could threaten a recently-agreed major trade deal between the two sides.
“The White House warned late last night that the US will impose tariffs on all goods coming into the country unless Mexico took action to clamp down on unlawful immigration and “reduce or eliminate the number of illegal aliens”.”
“Low-rated companies are the biggest accumulators of debt, prompting a major credit agency to warn of significant troubles if current conditions deteriorate. The alert from Moody’s Investors Services comes as worries mount over a looming economic downturn. Short-term bond yields have passed their longer-duration counterparts, a trend that often portends recessions.
“Should conditions continue to deteriorate, it could mean trouble for companies that are rated at the lower end of the spectrum…”
““We have probably the riskiest credit market that we have ever had,” said Scott Mather, chief investment officer of U.S. core strategies at Pimco.
“It’s like before the financial crisis, he said. “We see it in the buildup in corporate leverage, the decline in credit quality, and declining underwriting standards — all this late-cycle credit behavior we began to see in 2005 and 2006.”
“Basically, as Pimco Global Economic Adviser Joachim Fels put it to Bloomberg Televison’s Jonathan Ferro: “We’re seeing the end of an era. … We’re now entering an age of disruption.””