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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

1 hour ago - Health

U.S. ahead of pace on vaccines

A health care worker administers a dose of the Moderna vaccine in Ruleville, Mississippi. Photo: Rory Doyle/Bloomberg via Getty Images

The U.S. is now vaccinating an average of 2 million people a day, up from 1.3 million in early February.

Why it matters: That puts us on track to hit President Biden's goal of 100 million doses a month ahead of schedule.

Updated 3 hours ago - Politics & Policy

Harris breaks tie as Senate proceeds with lengthy debate on COVID relief bill

Photo: Oliver Contreras/Bloomberg via Getty Images

The Senate on Thursday voted 51-50 — with Vice President Kamala Harris breaking the tie — to proceed to debate on President Biden's $1.9 trillion coronavirus rescue package, likely setting up a final vote this weekend.

The state of play: Sen. Ron Johnson (R-Wis.) is forcing the Senate clerk to read the entire 628-page bill on the floor, a procedural move that will likely add 10 hours to the 20 hours already allotted for debate.

4 hours ago - World

Netanyahu campaigns against Biden's plan to save Iran deal

Netanyahu campaigns at a gym last month. Photo: Pool/AFP via Getty

Israeli Prime Minister Benjamin Netanyahu indirectly criticized the Biden administration for its intention to return to the Iran nuclear deal and told his supporters he was prepared to "stand against the entire world" to stop it.

Why it matters: This is a major change of tune for Netanyahu, who had been careful in his statements on the Iran deal and avoided publicly criticizing President Biden. The statement was part of Netanyahu's attempt to rally his base ahead of Israel's election on March 23.