US: We forecast the economic expansion at least for another year but uncertainty clouds the outlook – Wells Fargo

Today the yield on the 10-year Treasury note has traded below the yield on the 2-year note, a signal that usually anticipates a recession. Analysts at Wells Fargo see the fundamentals of the economy generally sound. They expected the expansion to continue but warn about increasing risks. 

Key Quotes: 

“At the risk of making the mistake of claiming that “it’s different this time,” the yield curve at present may not be quite as reliable as a recession predictor as it has been in the past.”

“The purchases of Treasury securities that the Fed undertook as part of its quantitative easing (QE) program collapsed the term premium on long-dated Treasury securities. The Fed is still holding over $2 trillion of Treasury securities on its balance sheet, so the yield on the 10-year note at present is arguably ¼ percentage point to maybe as much as ½ percentage point lower than it otherwise would be. In other words, the yield curve may not be inverted at present if not for the Fed’s QE purchases.”

“The underlying fundamentals of the economy are reasonably sound. The balance sheets of the household, non-financial and financial sectors are generally in good shape, and financial conditions are not overly restrictive.”

“But there is plenty of uncertainty in the air. There are ongoing trade tensions between the United States and China, and the protests in Hong Kong could potentially lead to military intervention by China. The United Kingdom could crash out of the European Union on October 31. These uncertainties could potentially weaken business fixed investment spending even further.”

“We currently forecast that the economic expansion, which is now in its 11th year, will continue through at least the end of next year. But we readily acknowledge that the uncertainty noted above clouds the outlook. We could conceivably end up “talking ourselves” into a recession.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Feed news

Latest Forex News

Editors’ Picks

AUD/USD: Choppy inside short-term triangle above 200-bar EMA

AUD/USD takes the bids to 0.6835 during Friday’s Asian session. The pair recently bounced off 200-bar Exponential Moving Average (EMA) and portrays a four-day-old symmetrical triangle. 


USD/JPY steady at 200-DMA ahead of critical US NFP data

Steady below the 200-day moving average, Yen fell from 108.97 to 108.66 overnight as positive trade deal headlines flowed through the news wires and helped US stocks eke out further gains. Risk appetite was solid into the close on Wall Street overnight.


US Non-Farm Payrolls November Preview: Labor market continues to defy concerns

Non-farm payrolls are predicted to rise 180,000 in Nov following Oct’s 128,000 increase. The unemployment rate is expected to be unchanged at 3.6%. Hourly earnings will gain 0.3% in Nov after October’s 0.2% increase and annual earnings will be stable at 3.0%.

Read more

Gold: Modestly changed to $1475 as markets turn cautious ahead of US NFP

Gold fails to extend the previous day’s recovery while trading near $1475/76 amid Friday’s Asian session. That said, the yellow metal registers failures to close beyond 50-day EMA for the third consecutive day.

Gold News

GBP/USD: 1.3180 holds the key to further upside

GBP/USD traders modestly changed around 1.3160 by the press time of early Asian session on Friday. That said, overbought conditions of the 14-day Relative Strength Index (RSI) and the recent stop in north-run make buyers doubtful.