The Treasury market’s 2-year yield yesterday (Sep. 15) broke the ceiling, rising nine basis points to a new four-year high of 0.82%, based on Treasury.gov’s daily data. After repeatedly testing but never breaking above the low-0.70% range this year, this key yield—reportedly the most sensitive spot on the curve for rate expectations—pushed above the old barrier on Tuesday. The timing of the increase–ahead of tomorrow’s policy announcement from the Federal Reserve–looks like a decisive bet that the central bank will begin raising rates when it issues a public statement on Thursday.
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● OECD reduces 2016 global growth forecast to 3.0% from 3.6% | Reuters
● Rate hike mistakes by central banks: A brief history | NY Times
● What could go wrong with Fed rate hike? | Bloomberg

US retail sales ticked higher in August, rising 0.2%–below several consensus forecasts but still a decent if unimpressive gain. Industrial output in the US in August, on the other hand, was clearly disappointing, suffering a 0.4% slide vs. the previous month—the weakest performance in three months. On a year-over-year basis, industrial activity also weakened, with growth dipping close to its lowest pace since the US recession ended in 2009. Does this add up to a clear signal that a new recession for the US is now fate? Some are tempted to make that call, but I’m not there yet, as I’ll explain.
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Last week’s forecast of “rapidly rising risk” of a global recession from Citigroup’s chief global economist, William Buiter, is attracting attention, which isn’t surprising at a time of stumbling financial and commodity markets. “The most likely scenario (40% probability), in our view, for the next few years is that global real GDP growth at market exchange rates will decline steadily from here on and reach or fall below 2% around the middle of 2016,” he wrote. “Growth is likely to bottom out in 2017 and start recovering again from late 2017 or early 2018.”
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● Russia’s military influence in Syria on the rise | NY Times
● The case for expecting no Fed rate hike this week | Bloomberg
● China’s currency headed for ongoing tumble, analysts say | CNN

No change is expected in US industrial production in tomorrow’s August report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The average prediction for a flat performance compares with a robust 0.6% increase in July.
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US retail sales are expected to increase 0.2% in tomorrow’s August report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The average prediction reflects a deceleration in growth after the previous month’s 0.6% rise.
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Emerging-market stocks have been getting hammered this year, but last week offered some relief. The Vanguard FTSE Emerging Markets ETF (VWO) jumped 3.9% for the week through Sep 11, delivering the best weekly performance–based on price-only returns–for our standard set of proxies for monitoring the major asset classes. Is it time to jump back into this battered-and-bruised corner of global equities? Probably not.
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● A Fed rate hike this week may be symbolic | LA Times
● Economic worries weigh on China stocks in Monday session | Reuters
● Is a banking crisis stalking China and other emerging markets? | Bloomberg

The Federal Reserve may raise interest rates when the dust clears from its policy meeting that concludes this Thursday (Sep. 17), although that’s looking like a shaky proposition in the wake of global market turmoil and mixed economic news for the US. Meantime, at the other end of the expectations spectrum, certain quarters of the perma-bear club are considering if conditions are again ripe for more monetary easing. The Fed’s multi-phase bond-buying program ended last October by winding down the third wave of quantitative easing (QE3). Reviving the effort with QE4 faces long odds, at least for this week, but the thought has crossed the minds of certain web travelers. For some visual perspective, let’s turn to Google Trends for some charting candy.
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