- Interest Rates: The 10-year Treasury is hitting around 2.08%, down from 3.25% just three months ago.
- Oil is down around $53 per barrel. Down from about $65 in April.
- Industrial Production has hit multi-year lows.
- Gold and the dollar are moving up.
These four indicators have many forecasting both a tougher time ahead and a rotation into safe havens. The central focus of concern is the trade wars with China and the new tariffs with Mexico.
Contrary to many doomsayers, as the Administration increased tariffs on China, the U.S. experienced only a minimal increase in inflation. The consumer was not really hurt. We recently reported on Nike’s scare tactics about price hikes that we believe were greatly exaggerated.
There might be more damage to the U.S. economy if the tariffs against Mexico go into effect. The world did not see this tariff coming and so there has been no time for companies to plan or react. Mexico is wrong to open their border for migrants from Central America to pass through, treating the US with less respect than they treat their own citizens. But if Mexico retaliates, which is likely, it will be much harder for companies to source their products to another country, as so many did with China. Markets are now pricing in both the China and Mexico trade conflicts and the effects will be significant.
Oil has no real problems. The supply and demand is in balance and getting better every month.
Markets are not pricing in a United States downturn, but more of a global downturn. Oil is seeing a significant drop in demand. Bear in mind that with tariffs often there is not as much drop in demand as people anticipate. The real change occurs in the redistribution of suppliers. Again, in China this was well planned for, but with Mexico companies just were not given enough time. It looks like OPEC+ is going to continue to take oil out of the system and US shale oil growth has greatly diminished since the end of last year.
This may be a good time to refinance your home. The rates are quite low and if we do not have a recession they will probably move up. At some point these tariff skirmishes could actually make the U.S. stronger.
Industrial production is an indice to watch closely as it will help us to determine if this is a global disruption in products or a decline in global economies overall.
Of course when the future is cloudy and people anticipate harder times, the result is often the U.S. Dollar and Gold moving up in value.