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Yields and Stocks Sink Further on Trade Volatility

Both equity prices and bond yields took another step lower this week, as escalating trade tensions stoked fears that the ongoing disputes could cause real damage to the U.S. economy.  This week, China targeted U.S. economic interests by preparing plans to limit exports of rare earth minerals.  China is responsible for 95% of the world's output and the metals are crucial to several U.S. industries.  Meanwhile, President Trump opened a new front in the trade hostilities by threatening to place escalating tarrifs on all Mexican exports to the U.S. 

The volatile atmosphere pushed bond yields lower by nine to fifteen bps, further inverting the yield curve.  This, in turn, has increased recession risks according to those measures which utilize bond yields.  However, the week's economic data was largely strong, showing no signs of a near-term downturn.  April's personal income and spending data was stronger than forecast while consumer confidence measures continued to rise.

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