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Illustration: Aïda Amer/Axios

Stocks roared higher on Tuesday after news that some Chinese imports would be spared from a 10% tariff increase the Trump administration plans to impose on Sept. 1, but the bond market was unimpressed and continued to push yields lower, tipping a strong recession indicator.

Why it matters: Bonds have been accurate in predicting Fed policy and U.S. economic indicators all year. Tuesday's market action shows investors believe the damage has already been done to the world economy — and that this temporary respite in the trade war is likely too little, too late.

The big picture: The bond market has consistently priced in the negative effects of the trade war, triggering recession alarms this year that have been accurate since World War II.

The stock market, on the other hand, has rallied on any good news about the trade war and renewed communication between China and the U.S., which has generally proved fleeting and short-lived.

What they're saying: "Talking is good, but there has been a lot of talk since Trump and Xi met in Buenos Aires last November, and not much progress," Lou Brien, market strategist at DRW Trading, tells Axios in an email.

  • "The high level of uncertainty has been quite negative for business planning and spending on capital expenditures, which has in turn caused several important indicators to roll over, such as the ISM indexes, Industrial Production and orders for Durable Goods."

Catch-up quick: Global economic data has consistently worsened in 2019, with Japan and 3 of Europe's 4 largest economies — Germany, Italy and the U.K. — heading toward recession by year-end, and China growing at its slowest pace in 27 years.

  • Central banks around the world have started cutting interest rates en masse, and policy is the most dovish it has been at any time since the global financial crisis, according to data from Goldman Sachs.
  • Stock investors are viewing the policy shift as evidence that growth will pick up and underpin a rally, while the bond market sees it as a sign the economy is in peril.

What to watch: The inverted 3-month/10-year yield curve, which most recently touched -35 basis points, and the 2-year/10-year inversion have preceded every recession in the past 70 years.

Go deeper

Read: Former Vice President Walter Mondale's last message

Photo courtesy of Mondale.

Former Vice President Walter Mondale wrote a farewell letter to his staff, sent upon his death on Monday, thanking them for years working together.

Dear Team,

Well my time has come. I am eager to rejoin Joan and Eleanor. Before I Go I wanted to let you know how much you mean to me. Never has a public servant had a better group of people working at their side!

Together we have accomplished so much and I know you will keep up the good fight.

Joe in the White House certainly helps.

I always knew it would be okay if I arrived some place and was greeted by one of you!

My best to all of you!

Fritz

Former Vice President Walter Mondale dies at 93

Walter Mondale, left, with former President Jimmy Carter in Jan. 2018 at the McNamara Alumni Center on the University of Minnesota's campus in Minneapolis. Photo: Anthony Souffle/Star Tribune via Getty Images

Walter Mondale, who transformed the role of U.S. vice president while serving under Jimmy Carter and was the Democratic nominee for president in 1984, died Monday at 93, according to a family spokesperson.

The big picture: President Biden, who was mentored by Mondale through the years, said in 2015 that the former vice president gave him a "roadmap" to successfully take on the job.

Scoop: U.S. ambassador refuses Kremlin push to leave Russia

U.S. Ambassador to Russia John Sullivan. Photo: Anton Novoderezhkin/TASS via Getty Images

The United States ambassador to Russia is refusing to leave the country after the Kremlin "advised" him to return home following new Biden administration sanctions, two sources briefed on the situation tell Axios.

Why it matters: John Sullivan, a respected diplomat who President Biden has, so far, retained from the Trump era, is at the center of one of the most important early tests of Biden's resolve.