Recession fears may be fading but global economy isn't out of the woods yet

A potential China slowdown, trade wars and the destabilization in eurozone are still seen as potential risks to the global economy.

Mumbai: Global fund managers are shrugging off fears of a recession. The latest Bank of America Merrill Lynch (BofA ML) survey showed 86% of money managers do not believe that the inversion of the US Treasury yield curve signals an impending recession. While this is positive, it offers little respite as far as investor sentiment goes. That is simply because the global economy is unlikely to miraculously recover either.

"There is no doubting a global slowdown. Market movements will hinge on the magnitude of slowdown and policy framework meted out to address the same," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

As things stand, risks to global economic growth are aplenty. A potential slowdown in China, trade wars, destabilization in the euro area, central bank liquidity traps and an unexpected rise in inflation were pointed out as the top five risks by asset managers in an Institute of International Finance (IIF) survey. Most asset managers find the current global macroeconomic and investment environment to be slightly less supportive now than a year ago.

No wonder then we could be staring at a phase of "low-growth, low-inflation" over the next 12 months, as pointed out by the BofA ML survey.

Striking a note of caution, global fund managers said that they are positioned for "secular stagnation".

This bearishness isn't surprising considering the deteriorating economic indicators across the world. For instance, the latest Purchasing Managers' Index (PMI) readings for developed economies present a disappointing picture. The US composite PMI dropped sharply from 54.6 to a 31-month low of 52.8 in April, indicating the American economy is fast losing momentum. What's more, the new export orders components of manufacturing PMIs remain very weak. Clearly, this does not bode well for global trade.

Of course, global central banks are expected to come to the rescue in the event of a major downturn. Over 95% of participants in the IIF survey expect global policymakers to respond to the next economic downturn with more monetary stimulus, while some 75% of participants foresee further fiscal stimulus.

Despite the odds, global equities are drawing comfort from renewed optimism around the US-China trade deal. The MSCI World Index and MSCI Asia (ex-Japan) Index have risen by around 15% so far this year. These indices are trading at a one-year forward price-to-earnings multiples of around 12-15 times.

But sentiment may turn sour if the deal fails again. Also, an economic slowdown will become difficult to ignore for equity markets as it starts reflecting in global corporate earnings, hurting overall returns.

Fabrizio

Commenti

Post popolari in questo blog

Charting the World Economy: The U.S. Jobs Market Is On Fire - Bloomberg

Charting the World Economy: The U.S. Jobs Market Is On Fire - Bloomberg https://www.bloomberg.com/news/articles/2019-12-06/charting-the-world-economy-the-u-s-jobs-market-is-on-fire Charting the World Economy: The U.S. Jobs Market Is On Fire Zoe Schneeweiss Explore what's moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast , Spotify or Pocket Cast . The last U.S. payrolls report of the decade was a doozy, beating expectations and doing its bit to keep the consumer in good health heading into 2020. That's good news given the various pressures still weighing on global growth. Here's some of the charts that appeared on Bloomberg this week, offering a pictorial insight into the latest developments in the global economy. U.S. Advertisement Scroll to continue with content ...

Continua a leggere

Fwd: The Looming Bank Collapse The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

After months of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there's another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse. John Lawrence: Inside the 2008 financial crash The financial...

Continua a leggere

Another Paradox: Consumer Spending Expectations Surge, Despite Dismal Income, Earnings

Call it the latest economic paradox. Despite widespread stories of doom and gloom about the state of US consumer finances once the fiscal stimulus bill expires on Dec 31, the latest NY Fed survey of consumer expectations unexpectedly shows that US consumers have little intention of slowing down their spending. In fact, and very paradoxically, despite depressed and flat income and earnings growth expectations, with median one-year ahead expected earnings growth at 2.0% for fifth consecutive month and expected income growth barely little changed at 2.14% ... ... consumers' 1-year ahead spending growth expectations jumped to 3.73% over the next 12 months in November - the highest level in more than four years, not only up from the 3.06% in the previous month but a whopping 33% more than the 2.8% reported last November, making this the biggest Y/Y increase in expected spending in series history. This bizarre increase took place even as labor market signals were mixed: although t...

Continua a leggere

Faber News Flow

Cerca nel blog