While Most Economic Indicators Tracked by RBC Continue to Suggest that No Recession Looms, Conditions Have Become Murky

Jun 14, 2019 | Nick Scholte


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The yield curve remains slightly inverted and trade conditions continue to cast uncertainty

To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 0.4%; the U.S. Dow Jones Index finishing up 0.4%; and the U.S. S&P 500 finishing up 0.5%.

Short update this week. The economic and investment horizon remains murky at present. While most indicators that RBC tracks continue to suggest that no recession looms, the fly in the ointment remains the yield curve. The yield curve has steepened (i.e. improved) modestly the past two weeks, although it still remains slightly inverted. Also, we all know that the Chinese trade situation continues to cast its own uncertainty on the markets. Countering these two more concerning issues is a U.S. Federal Reserve that has recently indicated a willingness to cut interest rates if needed. The Fed meets next week, and it’s possible it may act as soon as then. That being said, the more likely action date would be the July meeting. Deferring until at least then would allow the Fed to see if any headway is made on the Chinese trade front (there had been earlier talk of a meeting between President’s Trump and Xi at the end of June), and would also send a signal to the markets that the Fed is not panicking. Certainly inflation remains low, and should the Fed choose to cut, the low level of inflation would allow it do so without immediate fear of stoking unwanted inflation – indeed, the Fed would actually welcome slightly higher levels of inflation at present. I’ll continue to monitor with interest.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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