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  • Hello, and welcome back to The Note.

  • And it's been another rather miserable day on, well, stock markets both in Europe and the US,

  • more less all Friday's gains that came after the bank of Japan told us that

  • it was moving to next * have now been canceled out.

  • Japan has lost some of its gains since then.

  • If you also take a look at the oil prices, it's fallen once more,

  • but perhaps most concerning is what's going on in the bond market.

  • If you take a look at the 10-year treasury yield, you can see that it has dropped very sharply today.

  • It's below 1.9%. Okay, it has been lower than that in various times over the last few years,

  • but it's really quite remarkable that we are seeing a 10-year yield that low,

  • given the Fed has now actually started raising rates and told us that it's gonna keep doing so.

  • The people planning on buying the 10-year treasury are forcing its yield down

  • because there are negative yields elsewhere, but it's still a startling development.

  • If we now take a look at the bond market from another perspective and take a look at the yield's curve,

  • in other words, the gap between the yields on the 10-year and the yields on the 2-year treasury,

  • often seems very complicated but the basic intuition is wider.

  • That gap is, the greater the optimism is into the future,

  • the greater the belief is that you'll see growth and inflation and higher rates into the future.

  • Therefore, when you see narrowing as we've seen now,

  • we've got the flattest yield's curve since the crisis year of 2008.

  • That's a very negative sign.

  • It suggests that people are getting much more concerned about the risk of a recession here in the US.

  • Even if at least for the time being, the yields on the 2 and the 10-year treasury

  • haven't inverted in what is a very classic recession indicator.

  • Now, this is a big development.

  • Only a month ago, it was taken almost exactly * whatever else happened in the rest of the world,

  • the US would keep growing.

  • We've now seen a lot of research reports in the last few days from various brokerages

  • looking at what recession risk might look like here in the US.

  • They all come down on the notion, I think correctly that the US isn't in recession yet, but the risks of it are rising.

  • You can see that's in the very concerning ISM manufacturing date, which is still very mediocre.

  • You can also see that's in the Fed's senior loan officer survey, which came out this week,

  • and which show that standards of loans to companies are tightening.

  • If this proves merely to be a growth , if as still seems likely we can avert a recession

  • than presumably there should be value from the kind of levels we are at now.

  • If not, there is further for the stock markets of all.

  • Ever greater interest therefore, on the nonfarm payroll date, will be getting at the end of this week.

Hello, and welcome back to The Note.

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