Morning Commentary: G7 Interest rates – Nearing Rock Bottom?

Foreign Exchange - Morning Commentary

G7 Interest rates – Nearing Rock Bottom?

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Over the past few days, markets have been consumed with the fear of an impending global slowdown spreading to U.S. shores. U.S. interest rates have fallen sharply in the past week and yield curve inversion (short term yields higher than longer term yields) is beginning to show in parts of the U.S yield curve.  Historically, yield curve inversion has been a warning sign of weaker growth ahead or even a recession. U.S. interest rates falling and inverting is only part of the story that is taking place globally as interest rates continue to fall in all major economies attempting to cushion global economic weakness.
 
German 10-year yields moved below zero last week for the first time since 2016 and have remained below zero. Australia’s 10-year yield most recently fell to an all-time low of 1.772% and New Zealand’s 10-year bond yield hits its lowest level on record at nearly 1.87%. With global interest rates continuing to ratchet down, lower interest rates in theory will help cushion the U.S. and global economies. For today, at least, global equities are all higher and U.S. and global interest rates have hit a temporary bottom and are up on the session ignoring the weak U.S. housing starts data (see below).
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • U.S. Housing Starts for February fell by the most in the past eight months on a drop in single-family homes. Housing has been one of the weakest parts of the U.S. economy over the past year as the perfect storm of rising mortgage rates, higher lumber and land prices, and labor shortages have led to tight inventories and more expensive homes. While single family starts fell the most in four years, multifamily homes (apartment buildings and condominiums) jumped 17.8%. Three of four regions posted declines with the Northeast dropping an amazing 30%.
  • Correlating to the fall in housing starts, home prices, as measured by the Case-Shiller Home Price index, registered their smallest gains since late 2012 rising only by 0.1% month over month. Prices increased only by 3.6% YoY, down from 4.1% YoY from the previous month.
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