Photo: AFP/Johannes Eisele

US and European markets picked through the rubble of Friday’s sharp decline. Major equity indices were little changed. For the most part, stocks that were badly beaten up last week (retailers and automakers, for example) did somewhat better.

Tech stocks underperformed. The yield curve remained inverted between the 3-month bill and the 10-year note. But there was no sense of direction to a market which has no way to answer the two critical questions investors are asking:

1) Will the US and China reach a deal to avoid a trade war?

2) Will US households continue to act as the marginal buyer in the world economy?

It’s clear that the US economy is slowing sharply from last year’s 3% growth rate and that the major exporting economies are at or close to recession. But we don’t know whether the slowdown will turn into a global contraction this year or next. That’s the difference between having one nostril underwater or two.

Just-released data on world trade volume through January show a contraction, but the contraction isn’t much worse than that of late 2015-early 2016—yet.

The widely-followed Chicago National Activity Index for February came in at -0.29 after February’s revised -.25. The three-month average stands at -0.18. But the Chicago Fed considers -0.7 as the threshold for a recession forecast.

Germany’s IFO Business Survey came in slightly better than expected after last week’s disturbingly weak purchasing managers’ report.

The rebound occurred from very low levels, although the expectations component of the index did somewhat better.

In short, the data suggest a weakening economy but not a contracting one. We don’t know what the ongoing negotiations between the Trump Administration and China will bring. A sticking point is enforcement of intellectual property protection, which is not something that can be monitored by an intra-governmental commission, but rather enforced over time by the courts.

Washington made Beijing an offer that it didn’t understand, and Beijing simply doesn’t know how to respond. Assuming that this problem can be damage-controlled, some recovery in global CapEx and trade should begin during the second half of the year.

The most intractable among the unknowns is US household behavior. With the sudden stop in employment growth in February, households may retrench. I argued that the disappointing February jobs report wasn’t a fluke but an indication that US businesses couldn’t pass on the rising cost of wages in labor-intensive industries. Americans stopped buying and saved during December, perhaps because their expectations about future employment are far less enthusiastic than their evaluation of the present labor market.

For the moment, the stock market’s inability to find ground after a sharp decline on Friday and the continued fall in US bond yields keep me very cautious about equity markets.

In other markets, the Turkish lira – the currency I love to hate – clawed back half of its 6% loss of last Friday after the Turkish central bank pushed the overnight rate to 95%. Turkey has municipal elections March 31 and the Erdogan government desperately wants to avoid further devaluation before the vote. Shutting off all liquidity to the market is the equivalent of holding your breath in order to avoid inhaling poison gas. It works perfectly well, for a limited period of time. I still think the Turkish lira is going to 7 to the dollar.

Join the Conversation


  1. Admiring the persistence you put into your blog and detailed information you present.

    It’s good to come across a blog every once in a while that isn’t the
    same old rehashed information. Wonderful read! I’ve saved
    your site and I’m adding your RSS feeds to my Google account.

  2. My brother recommended I would possibly like this website.
    He was totally right. This publish truly made my day.
    You cann’t believe simply how so much time I had spent for this information! Thank you!

  3. I am really loving the theme/design of your blog.
    Do you ever run into any web browser compatibility
    problems? A few of my blog audience have complained about my website not operating
    correctly in Explorer but looks great in Safari. Do
    you have any tips to help fix this issue?

  4. It is appropriate time to make some plans for the future and it is time to be happy.
    I’ve read this post and if I could I want to suggest
    you few interesting things or tips. Maybe you can write next articles referring to this article.
    I wish to read more things about it!

  5. Howdy! I could have sworn I’ve been to this blog before but after checking through some of the post I realized it’s new to me.

    Nonetheless, I’m definitely glad I found it and I’ll be book-marking and checking back often!

  6. Appreciating the persistence you put into your blog
    and detailed information you offer. It’s awesome to come
    across a blog every once in a while that isn’t the same old rehashed material.
    Fantastic read! I’ve bookmarked your site and I’m including your
    RSS feeds to my Google account.

  7. You’re so interesting! I do not think I’ve
    read through anything like this before. So wonderful to discover somebody with a few genuine thoughts on this subject matter.
    Really.. many thanks for starting this up. This web site is one thing
    that is needed on the internet, someone with a bit of originality!

  8. An outstanding share! I’ve just forwarded this onto a colleague who was conducting a little homework on this.
    And he actually bought me dinner because I found it for
    him… lol. So allow me to reword this…. Thanks for the
    meal!! But yeah, thanx for spending time to discuss this matter here on your blog.

  9. Thanks a lot for sharing this with all of us you really recognize what you are
    talking approximately! Bookmarked. Please additionally consult with my web site =).
    We could have a hyperlink alternate arrangement between us

  10. Asking questions are truly good thing if you are not understanding something totally,
    except this post presents good understanding yet. pof natalielise

  11. Attractive element of content. I just stumbled upon your website and in accession capital to claim that I acquire in fact enjoyed account
    your blog posts. Anyway I’ll be subscribing in your feeds or even I success you get entry
    to constantly rapidly.

  12. Greetings, I do believe your blog could be
    having web browser compatibility problems. Whenever I take a look at your website in Safari,
    it looks fine but when opening in Internet Explorer, it has some overlapping issues.
    I merely wanted to provide you with a quick heads up!
    Other than that, wonderful blog!

  13. We absolutely love your blog and find a lot of your post’s to be precisely what I’m looking for.
    Does one offer guest writers to write content for yourself?

    I wouldn’t mind writing a post or elaborating on a
    few of the subjects you write concerning here.
    Again, awesome website!

  14. You really make it seem really easy along with your presentation but I
    to find this matter to be actually one thing which I believe I might never understand.
    It sort of feels too complex and very wide for me. I’m
    looking forward for your next put up, I will try to get
    the cling of it!

  15. Yesterday, while I was at work, my sister stole my iphone and
    tested to see if it can survive a 40 foot drop, just so she
    can be a youtube sensation. My iPad is now broken and she has 83
    views. I know this is completely off topic but I had to
    share it with someone!

  16. Thanks for every other informative website. Where else may just I am
    getting that kind of information written in such
    an ideal approach? I’ve a undertaking that I’m simply now working
    on, and I have been on the look out for such information.

  17. Simply want to say your article is as amazing. The clearness in your post is simply spectacular and i could assume you’re an expert on this subject. Well with your permission allow me to grab your feed to keep up to date with forthcoming post. Thanks a million and please carry on the enjoyable work.

  18. Oh my goodness! Awesome article dude! Many thanks, However I am experiencing problems with your RSS. I don’t understand why I am unable to subscribe to it. Is there anybody getting the same RSS problems? Anybody who knows the solution will you kindly respond? Thanks!!

  19. Hi, Neat post. There is a problem together with your web
    site in web explorer, might check this? IE still is the marketplace
    leader and a big component to other folks will miss your
    magnificent writing because of this problem.

  20. Hi there to every body, it’s my first pay a visit of
    this web site; this web site consists of awesome and
    actually excellent information designed for readers.

Leave a comment

Your email address will not be published.