Stall speed. The third estimate of Second Quarter GDP growth was 2.0% and the Federal Reserve Bank of Atlanta projects Third Quarter GDP growth to decelerate further to 1.8%. According to the Bureau of Labor Statistics (“BLS”), changes in total nonfarm payroll in the past three months were 166,000, 168,000 and 136,000, respectively, an average of 156,667 and a deceleration from 187,083 for the 12 months prior. Additionally, the BLS revised downward by 501,000, jobs created in the US between March 2018 and March 2019. Due to the slowing GDP and job growth (albeit, both still positive), the long end of the yield curve continues to decline as the yield on the 10-Year Treasury Note dropped from 2.000% on June 30 to 1.675% on September 30; the spread between the 3 Month Treasury Bill and the 10 Year Treasury Note was inverted for the entire Third Quarter.
Monetary policy stimulus took center stage across the globe during the Third Quarter, ostensibly buying “insurance” against “downside risks.” Countries in the Index with central bank rate cuts during the quarter include Australia (-25 basis points/bps) and the US (-25 bps) in July, Hong Kong (-25 bps) and New Zealand (-50 bps) in August and the US (-25 bps), Hong Kong (-25 bps) and Eurozone (-10 bps) in September. Roughly 85% of central bank rate adjustments across the globe were to the downside so far this year, compared to only 35% in 2018. Long-term sovereign bond yields are on a similar downward spiral: US 10-year at 1.67% (-140 bps from a year ago), Canada at 1.36% (-107 bps), Hong Kong at 1.27% (-116 bps), Australia at 1.03% (-165 bps), UK at 0.49% (-95 bps), Japan at -0.22% (-35 bps) and Germany at -0.57% (-105 bps), to name a few. Global government bond yields are at/near all-time lows while negative yielding global debt continues to tick higher, recently $17 trillion from $11.5 trillion last quarter. Global property securities are typically in vogue when interest rates are low/falling, on rising valuations, lower borrowing costs, higher earnings/dividends/cash flows and widening yield spreads versus competing investments. Yet slowing global growth is the primary driver for the accelerating rounds of rate cuts and falling yields, which could eventually weigh on operating fundamentals and share prices for all asset classes if/when demand starts to wane.