Ten-X: Capital Markets, Labor Market Healthy

Despite concerns about cooling global economic growth and potential trade wars, capital markets and the labor market remain in good shape, said Ten-X Irvine, Calif.

The Ten-X Liquidity Tracker report studies data credit and liquidity indicators to look for potential disruptions to the economic and real estate cycles from the capital markets.

“High-yield issuance is on the upswing, C&I [commercial and industrial] loans are still on the rise and commercial mortgage-backed securities issuance improved in the second quarter, though the mid-year total still trails last year’s pace,” the Liquidity Tracker report said. “Real estate loans continue to steadily expand at a more modest clip.”

Meanwhile, CMBS spreads “hovered” during the second quarter, “down from their December spike but still elevated from levels seen across much of 2017 and 2018,” the report said.

Ten-X noted the U.S. and China have not yet settled their trade policy disagreements. “The trade war with China continues to swirl, though the U.S. and China have agreed to hold off on additional tariffs and continue negotiations for the time being, prompting optimism of late,” the report said.

In positive news for the economy, payrolls pounced back in June as unemployment remains tight and wage growth holds above three percent. The stock market also saw “robust” June gains, while the Chicago Board Options Exchange’s Volatility Index, which tracks options market changes, has remained “tranquil” despite the geopolitical noise, the report noted.

But the yield curve continues to flash warning signs as the key three-month/10-year measure has stayed inverted for well over a month with short-term rates exceeding long-term rates, the report noted. “While this does not mean a recession is imminent, it has historically suggested that one is likely over the next year or so,” Ten-X said.

As a result, speculation is growing the Fed might cut interest rates as soon as today. Ten-X noted Fed Chairman Jerome Powell acknowledged crosscurrents weighing on the economy and said the Chairman was not moved by June’s healthy job-creation report, “leading many to expect a quarter to half point cut for the end of July,” the report said.