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Treasury Market Breaks Short-Term Trend (Technically Speaking For 5/6)

May 06, 2020 5:53 PM ETSPY, QQQ, IWM, IEF4 Comments
Hale Stewart profile picture
Hale Stewart


  • The European Commission released a very negative report about EU growth.
  • The Chicago Fed has a new COVID unemployment rate that is the worst in history.
  • The Treasury market sold off a bit, breaking technical support.

The European Commission released its latest EU economic projections, which are dire:

The EU economy is forecast to contract by 7½% in 2020 andgrow by around 6% in 2021

This isn't a surprise when you consider the depth of the current slowdown (see Markit Economics commentary below). The report adds a few key points:

The shock to the EU economy is symmetric in that the pandemic has hit all Member States, but both the drop in output in 2020 (from -4¼% in Poland to -9¾% in Greece) and the strength of the rebound in 2021 are set to differ markedly. Each Member State's economic recovery will depend not only on the evolution of the pandemic in that country, but also on the structure of their economies and their capacity to respond with stabilising policies.

All the economies have locked-down their businesses, which means the drop in output is uniform across the continent. But the recovery will be country-specific. For example, Greece is far more dependent on tourism, which means its recovery will be hampered so long as there isn't a vaccine.

The coronavirus pandemic has severely affected consumer spending, industrial output, investment, trade, capital flows and supply chains.

All GDP components, save for government spending, have dropped sharply.

The Spring Forecast is clouded by a higher than usual degree of uncertainty. It is based on a set of assumptions about the evolution of the coronavirus pandemic and associated containment measures.

Economic forecasting is more about the process than the outcome, allowing economists to think through data relationships. The current situation may cause some correlation coefficients to change markedly, meaning the models aren't as helpful as before.

Markit Economics has released more data. It's terrible. All the reports note that production, new orders, new export orders, and employment are lower. Numerous reports observe that the data

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (4)

Excellent data and commentary,thanks.
g23riel profile picture
Today’s yield snap back was in full effect despite the mixed equities. I think Monday was a turning point.
Hale. Thank you for your analysis. I read it every day.
Mergatroid profile picture
Might this be an early data point indication that the “yield snap back “ has begun.....
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