* Wall Street's 'exceptionalism'?
U.S. stocks' outperformance since war in the Middle East broke out has been impressive. Compare and contrast: euro zone stocks are down 3%, UK stocks are down 4%, the Nikkei and Asia ex-Japan are down around 7%; the S&P 500 has lost less than 2% and the Nasdaq is almost flat.
Yet zoom out to January 1, and the picture flips on its head. So far this year: euro zone stocks are up 1%, UK stocks and the Nikkei are up 4%, and Asia ex-Japan is up around 7%; the S&P 500 has lost 2.5% and the Nasdaq is down 4.5%.
* U.S. fuel shock
Average U.S. gas prices at the pump are up 25% to just under or just over $4/gallon, depending on the survey, and diesel is now over $5/gallon. Jet fuel has jumped more than 50%, a rise that is sure to push the cost of air travel quite substantially.
So far, U.S. consumers have remained extremely resilient to the war-driven surge in fuel costs. But assuming they stay elevated for a while yet, they will bite. Perhaps this helps explain why the bond yield curve is flattening - once the initial inflation shock has passed, growth could slow sharply.
* Curves flatten everywhere
It's not just the U.S. yield curve flattening. If you believe what yield curves signal about the future growth outlook, bond markets are warning that a slowdown is coming in many industrialized economies.
The German 2s/10s yield curve has been flattening since early February when it was around 80 bps. It recently compressed to 45 bps, the flattest in a year. Similarly, the UK yield curve was above 90 bps, the steepest since 2018, but is flattening now. And the Aussie curve, facing rising policy rates, is the flattest since December 2024.
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