7 December 2018 FT — Articles to Read

7 December 2018


Question: According to MSN: Lifestyle, what are five (5) holiday nightmares that can break the bank?


Oil prices slide as Opec and its allies struggle to settle on production cuts – Pg. 1

–          Oil prices fell as much as 5% yesterday after Saudi Arabia’s energy minister said he was “not confident” that a deal to cut crude production could be achieved between Opec and its allies

–          Benchmark crude prices have plummeted 30% in the past two months as global supplies have started to outstrip demand, dropping from more than $86 a barrel in early October to near $58 a barrel yesterday


Investors cancel US rate rise bets – Pg. 2

–          Crumbling hopes for a US trade reprochement with China and worries about sluggish global growth prompted investors to slash their bets on Federal Reserve rate rises yesterday

–          Fed funds futures, derivatives contracts that investors use to wager interest rates, show traders still expect the central bank will raise rates this month, but are growing less certain.  They are also increasingly skeptical that the Fed will keep raising rates in 2019.  The Fed’s current overnight rate target is now between 2 and 2.25%

–          The market is pricing in in only a 63% chance that the Fed raises rates this month – down from over 80% in mid-September.

–          …Fed funds futures are pricing in a nearly 40% chance that the central bank does not touch interest rates again next year, and a 33% possibility it lifts rates only once.  Markets are pricing in a mere 2% chance the Fed raises rates by the three times it indicated in September

–          The shift in sentiment comes despite strong data on the domestic US economy, including buoyant figures for the services sector


Yield curve offers clues to chances of a recession – Pg. 21

–          The yield curve is created by plotting US government bondyields of different maturities on a single graph with the Federal Reserve’s overnight interest rate at one end and the 30-year “long” Treasury bond at the other

–          Typically, it should cost less to borrow money for one day than one year or a decade and 30 years should be the priciest.  This is, in part, because a lot of things can happen to an investment over time – such as inflation that would erode the fixed returns of a bond – which means investors tend to want compensation for taking on that risk

–          Therefore, shorter dated Treasury bonds, which are inclined to hew closely to the Fed’s interest rates, usually have a lower yield than longer dated ones

–          That means the shape of the yield curve tends to slope upwards on a chart over time, from left to right

–          If there is a big difference between short- and long-term Treasury yields – that is, if there is a steep upward curve- then it suggests that investors expect inflation and interest rates to rise markedly in the future.  The curve can be particularly steep as the US economy  is pulling out of a recession

–          But as that difference  declines – as the curve flattens, as it is doing now – it indicates that investors expect slower inflation and more tepid economic growth in the future

–          A yield curve inversion has preceded every recession in the US since the second world war

–          The most powerful indicator is the difference between two-year and 10-year Treasury yields.  At its post-2008 financial crisis peak, that difference, or spread, was above 290 bps, as the economy pulled out of recession

–          US economic growth in the third quarter was strong.  Unemployment and wage growth data are still broadly positive

–          …an inverted yield curve is a warning sign precisely because it tells investors about expectations for the future and not necessarily about the state of things right now.

–          There are concerns that the economic sugar rush provided by tax cuts this year will soon wear off

–          Since 1980, the average time lag between the yield curve inverting and the economy falling into recession is 21 months, ….and it can take almost three years…

–          …there has been one occasion where the curve has inverted and a recession has not occurred – in the mid-1960s

–          Some analysts and Federal Reserve officials, as well as the US central bank’s former chairman Ben Bernanke, have also argued that the world is much different now to when the yield curve inverted before the last financial crisis and as such the indicator may not be as reliable


Answer: (1) Your home catches on fire; (2) A guest hurts themselves in your home; (3) Your flight or cruise gets canceled; (4) Your holiday shopping is stolen; (5) Credit card fraud or ID theft