The gap between US two-year and 10-year Treasury yields – a closely watched metric for signs of a slowdown – fell to less than a basis point after shrinking on Tuesday to its narrowest since June 2007. An inverted yield curve has sparked panic among investors, CNBC has reported. Bank of America technical strategist Stephen Suttmeier said the US was now on “borrowed time”.
Mr Suttmeier said: “The US equity market is on borrowed time after the yield curve inverts.
“However, after an initial post-inversion dip, the S&P 500 can rally meaningfully prior to a bigger US recession related drawdown.
“While yield curve inversions can be a leading indicator of economic weakness or recession, they are an early warning sign.
“Going back to 1956 it has taken between eight and 24 months for a US recession to start after a yield curve inversion.”
Dow futures dropped 200 due to the worrying prediction.
JUST IN: Germany CRISIS: Merkel faces economic contraction
Equity investors on Wall Street and Asia had cheered earlier when US President Donald Trump pushed back a September 1 deadline for new tariffs on remaining Chinese imports.
The S&P 500, which had fallen 1% on Monday, rose 1.5% overnight, sending Asian stocks outside Japan up 0.6%.
Benchmarks in Shanghai, Hong Kong and Tokyo all mirrored the surge in US stocks.
But the momentum ebbed in Europe, as optimism faded that Mr Trump’s move meant tensions were easing and Germany’s slowdown showed the damage already done by the trade war.
“And you don’t try to weaken the dollar and you don’t try to get the Fed to cut rates dramatically if things are great.”
When asked why more wasn’t being done, he said it was because “someone is bulls**ting the general public.
He warned: “I get the sense that the pressure is happening because the closer we get to the election the more important it is that the stock market stays here.”
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