The optimism investors had over improving U.S.-China trade relations was short-lived after Canadian authorities arrested Meng Wenzhou, writes BNY Mellon's Paul Flood in a note.
Canadian authorities arrested Huawei’s Chief Financial Officer, Meng Wenzhou, in Vancouver a few days ago on reported charges of violations to U.S. sanctions. Now she faces extradition to the U.S.
«Investors immediately priced in a deterioration to the trade relations pushing Asian markets down heavily on the open. U.S. futures are also down heavily on the news,» said Paul Flood (pictured above), a strategist at Newton Asset Management, an investment specialist at BNY Mellon Investment Management.
Inversion in the Yield Curve
With the Federal Reserve (Fed) easing rate expectations bonds have been performing well. «We now have an inversion in the yield curve, with two-year treasuries yielding less than five-year treasuries. Investors will be closely monitoring the difference between two and ten-year treasuries as it is a more effective indicator of a recession,» he adds.
On average a recession follows an inversion of the yield curve two years after. However, a trade war could quite easily bring this forward.
