Economic analysts were spotted Monday as the Dow Jones Industrial Average dropped more than 800 points and other key stock indices plunged in the worst fall of 2019. The fall came amid turmoil from President Donald Trump's fierce trade war with China.
China's currency fell to its lowest point in ten years, the Associated Press reported, following Trump's announcement last week that he would move forward with a new round of tariffs.
Bloomberg reported in a story with the headline “Yield Curve Blares Loudest US Recession Warning Since 2007 ″:
The latest outbreak of US-China trade dispute pushed a recession indicator for the Treasury market to the highest alert since 2007.  Prices of 10-year banknotes fell to 1.73% on Monday, almost completely erasing the wave that followed President Donald Trump's 2016 election. At one point, they gave 32 basis points less than three months of bills – that's the most extreme the inversion in the yield curve since the start of the crisis in 2008 – but now that gap has since narrowed again.
As I previously reported:
Basically, the yield curve reflects the relationship between the yield on government bonds over different time periods. Usually, the yield on a bond – the interest that will be paid after the bond maturity – is greater the longer the maturity. However, in a reversed return environment, which has begun to emerge, three months of return may actually be higher than ten years.
It is not so that the reverse yield curve triggers a recession. The curve is only determined by the bond markets. What it does is give us an insight into what investors expect for the future – and when the curve is reversed, it means investors are nervous.
Trump's volatility and the deteriorating negotiations with China give investors good reason to be nervous. And just last week, Chairman Jerome Powell announced that due to signs of weakness in the US business climate and the risk of the trade war, the Federal Reserve will reduce interest rates for the first time since the 2008 recession.
Of course, the risk of a recession doesn't really matter because it harms investors. The recessions matter because they can be detrimental to the economy as a whole.
Economist Paul Krugman noted that Trump wants to blame China for the fall in the stock market, but he has no one to blame for himself.
"Trump is already screaming & # 39; currency manipulation & # 39; about the fall of the renminbi. But he just hit a bunch of new tariffs on China. What did he expect to happen to the currency? " Krugman said on Twitter.
He even offered a disturbing warning from his own:" Hope I am wrong, but in retrospect, Trump's latest tariffs may look like world trade equivalent to the attack on Franz Ferdinand – the incident that triggered a troubled situation in an entire trade war. "
Economic analyst Catherine Rampell scornfully remarked that Trump had claimed a trade war would be" easy to win ":
Trade wars are good and easy to win pic.twitter.com/C1pnl237Up
– Catherine Rampell (@crampell) August 5, 2019
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