China Hopes Wear Off Fast

Well, that didn’t last long. The shelf life of news headlines these days is increasingly short, and the weekend’s positive trade headlines between the US and China are just another example. Less than 24 hours after a strong positive opening Monday morning, when we combine the decline off the highs yesterday and this morning’s weakness, US equities are on pace to give up 40% of their initial gains after the S&P 500 failed to make a higher high in its rally yesterday.

While the reported trade truce between the US and China over the weekend was supposed to remove a cloud of uncertainty over the economy, the yield curve (10yr vs 3m) didn’t seem to think so. While the curve steepened initially on Monday morning, it steadily flattened throughout the trading day and has continued to do so overnight and today.

Today’s 8 bps flattening of the curve is the largest one day decline in over six months, and at the current level of 55 basis points, the curve is the flattest it has been since January 2008. While flat yield curves aren’t necessarily signs of economic weakness, they don’t suggest a whole lot of confidence in growth either.

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