We start with the United States where Janet Yellen's testimony suggests that the Fed is becoming more concerned about tight financial conditions, the RMB devaluation, and global economic uncertainty.
Source: FRB
Strangely, Yellen left the door open for a March rate hike, disappointing those who expected her to take near-term hikes off the table. In that sense the testimony was not as dovish as some had hoped – in spite of the concerns expressed above.
The January 2018 Fed Funds futures now imply a rate of 62.5bp by the end of next year. That's only 25bp above the current level.
Source: barchart
Here are a number of other economic/market developments in the US.
1. Options on Dec-2017 LIBOR futures are pricing in a rising probability of negative rates in the United States. The markets are questioning the Fed's credibility.
Source: BAML
By the way, here is the relative search frequency on Google for the term “negative rates” over time.
h/t @ReutersJamie
2. As discussed before, the treasury curve continues to flatten. The 10y-2y spread is now around 100bp, the lowest in 8 years. This shows diminishing expectations for longer-term US economic growth.
Source: @FT
Related to the above, betting against treasuries once again turned into a nightmare for some (speculative accounts were net short treasuries going into 2016). Here are the 10-year note futures.
Source: barchart
3. US federal corporate income tax receipts turned lower. Some suggest this is a sign of a recession. Perhaps.
Source: Yardeni Research
4. Are the ISM manufacturing and non-manufacturing indices showing the “wrong way” convergence (service sector activity following manufacturing lower)?
h/t @GoldmanSachs
5. This next trend is one of several reasons that HSBC has downgraded their US 2016 GDP forecast to 2.0% from 2.3%. It shows new orders for non-IT equipment.
Source: HSBC
Next let's take a look at some developments in the energy space.
1. Mining and exploration investment has fallen sharply as a share of total private investment. A portion of the decline in orders (above) is impacted by this trend.
