The yield curve inversion plus why banks and banking stocks are impacted by it

The U.S. 10-year Treasury constant maturity yield minus the 2-year Treasury constant maturity yield spread has been a good indicator of past recessions. Yield curve inversion which happens when the spread turns negative and has preceded the last seven straight recessions. The 10-year Treasury constant maturity yield minus the 2-year Treasury constant maturity yield is the lowest since the last recession at only 10 bps.

10y minus 2y yield December 5 2018
Data Source: Source: Federal Reserve Bank of St. Louis

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Here’s how the European Central Bank or ECB could unwind or reduce its balance sheet plus what is the new normal for the ECB?

The European Central Bank (ECB) only started its Quantitative Easing (or QE) program in March 2015 in order to fight ultralow inflation in the Eurozone (also called the Euro Area). It somewhat worked by weakening the Euro (€), increasing exports, giving the stock market a boost and drastically lowering financing costs for European governments and corporations. This caused the ECB balance sheet to soar over €4.5 trillion or 45% of Eurozone GDP.

ECB Balance Sheet until November 2018
Data Source: ECB

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Household credit growth in Canada is slowest in 35 years but outstanding household debt stands at over 125% of GDP and individual debt is already 175% of disposable income

Households in Canada are accumulating debt at the slowest pace in 35 years as interest rates continue to rise. Household credit growth has slowed to 3.5%, the slowest since 1983.

Canada Household Credit Growth Rate November 2018
Source: Bank of Canada

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Germany Q3 2018 GDP shrank 0.2% on the previous quarter (worst since 2015), did Eurozone really grow 0.2%?

The Federal Statistical Office (Destatis) reported that the German GDP shrank by 0.2% in the third quarter (vs the second quarter) of 2018. Growth was +1.1% on the same quarter a year earlier following increases of 2.3% in the second quarter (calendar adjusted: +2.0%) and 1.4% in the first quarter of 2018 (calendar adjusted: +2.1%).

German Q3 2018 GDP

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Nominal wages in the UK grew fastest in a decade but real wages are still lower than a decade ago

As widely expected, wages are rising in the UK, at least partially due to labour shortages down to Brexit. Nominal wage growth was fastest in a decade, but real (adjusted for inflation) wages are still lower than a decade ago. We recently also wrote about why wages weren’t rising despite record employment and labour shortages.

Great Britain average weekly earnings excluding bonuses annual growth rates November 2018

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UK Q3 2018 GDP increased by 0.6% (growing 3 times quicker than the Eurozone and at the fastest pace since 2016) but business investment fell

UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.6% between Quarter 2 (Apr to June) 2018 and Quarter 3 (July to Sept) 2018.

In comparison with the same quarter in the previous year, the UK economy has grown by 1.5%, continuing its relatively subdued performance over the last year.

UK 2018 Q3 GDP QoQ growth

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