Moments after yields tumbled across the curve following the first contractionary US Mfg PMI print in a decade, which sparked fears that a US recession has finally arrived bond traders were whipsawed by comments from (non-voting) Philly Fed president Patrick Harker, who in an interview with CNBC said that he doesn't see any need for further stimulus at the moment.
"We are roughly where neutral is," Harker added and noted that they saw the US-China trade dispute as an "economic headwind."
While "It’s hard to know exactly where neutral is" Harker said that "we’re roughly where neutral is right now. And I think we should stay here for a while and see how things play out."
Asked if he sees a case for further stimulus, Harker replied “No. Not right now... The labor markets are strong, inflation is moving up slowly — but with the last CPI print, it was a good print."
His unexpectedly hawkish comments echoed remarks from the Fed's Esther George who said it was not time for accommodation as the labor market remains strong.
Here are some other soundbites from his interview with Steve Liesman:
- "Yield curve is only one of many signals."
- "Trade issue makes business decisions difficult."
- "Growth now is exactly what we had anticipated last year."
- "No need for another rate cut, central bank should stay here for a while."
- "Trade resolution would boost growth."
Supported by these hawkish remarks, the US Dollar Index rebounded from the session low that it set at 98.08 in the last hour and is now at 98.18, still losing 0.08% on the day.
But the biggest market reaction was the sharp spike in 2Y yields which rebounded from 1.555% to over 1.60% in the span of minutes following Harker's comments.
And with the 10Y not moving nearly as much, the 2s10s curve re-inverted sharply thanks to Harker's hawkish commentary...
... once again sparking concerns among stocks that a recession is imminent, and sending the S&P back in the red.