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Sun appears to be setting on the US economic cycle

Publication Date: 05 Jul 2019 - By ReachX Team By ReachX T.

Macro FX & Rates Multi Asset USA


Is the sun setting on the US economic cycle? Perhaps its the question many market commentators are asking, especially Kit Juckes, Head of FX at French investment bank Société Générale

In a note to clients, the industry expert said the whole of the US yield curve is now under the 2.5% upper bound of the Fed Funds target range. 

“30-year yields ended Wednesday (3 July) at 2.47%, their lowest level since October 2016, when the Fed Funds target was 2% lower than it is now. The last time the whole US curve was inverted in this way and a recession didn't follow, was in 1986, when the bond market rally was led by a very sharp fall in oil prices as OPEC output increased by around 25%.” 

Juckes said there are plenty of reasons to be sceptical about whether the curve is now a good indicator of where the economy is going, and the S&P 500 made a new high yesterday, but the debate about the economic outlook will rage on. 

“Wednesday’s ISM and ADP data were both softer than expected. We think the sun is slowly setting on this cycle, even if the evidence is likely to remain mixed.”

Meanwhile, US President Donald Trump has been tweeting again. “China and Europe are playing big currency manipulation game and pumping money into their system in order to compete with the US. We should match or continue being the dummies who sit back and politely watch as other countries continue to play their games.”

Since 1995, the US has only intervened in the FX market twice - against the yen in 1998 and the euro in 2000. That's a contrast to the interventions that followed the Plaza accord in 1985, but those came against a backdrop of a co-ordinated approach to FX policy. 

“Even so, it's worth noting that while the US ignored complaints of ‘currency war' when the dollar was weak in 2010, those comments were a decent predictor of the dollar's turn higher in 2011. At the very least, the President's remarks reflect the fact that the dollar is too strong,” Juckes noted.


I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX T.


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