China Is The Source Of The Deflation Trade

Forget about a recession in the US. Currently, it is China's recession/depression that is weighing on oil prices, global bond yields, and the dollar. Weak Chinese demand for oil caused OPEC today to trim the outlook for global oil demand, further depressing oil prices. Brent crude oil prices fell below $70 a barrel on Tuesday to their cheapest since December 2021 (chart).

Declining oil prices dragged the 10-year Treasury yield down to 3.65%, lows not seen since early 2023 when markets fretted that the mini-regional banking crisis would spark a recession (chart).