World Smokestacks Stall

Yields fall on European recession fears. Swap rates and Treasury yields broadly fell across the curve today after weaker-than-expected Eurozone economic data signaled that higher interest rates may be having a more pronounced impact on the global economy. 10-year UST yields fell as low as 3.69% today, paring the drop to end the day at ~3.74%. 2-year UST yields ended the day down ~5bps at 4.74%. Equities notched their worst week since March, driven by central bank hiking expectations. The S&P 500 ended the week 1.4% lower, and the NASDAQ was down 1.3%.

Global factory lines slow down. Today’s data indicated that world economies are increasingly reliant on services to fuel growth, as factories worldwide are slowing production and struggling to secure orders. PMI surveys released Friday showed manufacturing contraction, with the U.S. manufacturing PMI index hitting a YTD low and the Eurozone equivalent coming in at the lowest level in more than three years. As consumers shift spending to services, the global economy faces excess inventories, and higher rates have made investment in capital assets costlier. This data followed several recent central bank decisions where policymakers indicated that rates would continue to climb through the end of the year. Despite these signals and in contrast with rising recession concerns in Europe, just yesterday U.S. Treasury Secretary Yellen said that she sees lower U.S. recession odds due to labor market resilience and declining inflation.

Week ahead. Next week’s packed calendar includes Durable Goods and Home Sales data on Tuesday, Mortgage Application Data on Wednesday, GDP data on Thursday and Consumer Spending, PCE and Michigan sentiment data on Friday. Also look out for Fedspeak throughout the week, highlighted by speeches from Chair Powell on Wednesday and Thursday.