“Global recession risks are on the rise and we could see a “really sharp correction” within the next 18 months, according to Ian Harnett, chief investment strategist at Absolute Strategy Research…
He suggested that price-to-earnings (P/E) ratios, an important metric used by traders to gauge the value of stocks, pointed toward a substantial downturn…
“This is a huge recipe for a really sharp correction in global equity markets at some stage in the next 18 months,” he concluded.
“And I mean really large, because we are looking at these recession risk models rising, credit impulse numbers in the states are weak, that tends to bring unemployment up and tends to bring equity markets down.”
“…Meanwhile, Shard Capital strategist Bill Blain suggested on Thursday that investors might want to have their “hard hat handy.” He suggested Chinese growth could slow to as low as 4% as its economy continues to mature.
““If China is 4%, the shocking global reality is global growth is much, much lower than the central bank geniuses expected,” Blain said in a note on Thursday.
““They’ve been juicing asset markets for the last 8 years with lower-for-longer rates and QE (quantitative easing) — with the effect of creating massive asset bubbles in both.”
“Blain suggested central bankers had been hoping that Chinese-fueled rising growth would justify the levels financial assets have reached, with stock and bond markets pushing records.
““But it won’t — global growth is slowing because China is maturing, which means financial assets are, and will remain, a bubble,” he argued.
““When the market finally grasps the fact lower interest rates are not going to be supported by growth, that’s when you really want your hard hat handy.””
“Economic forecaster Lakshman Achuthan has a warning for investors: Brace for earnings to go negative. According to the Economic Cycle Research Institute co-founder, the global slowdown is unleashing major challenges for U.S. corporations.”
“We may be in the longest economic expansion in American history, but there are already plenty of warning signs that the next recession may be on its way…
“According to a Reuters report in May, factory activity dropped to near 10-year lows, sparking fresh concern. In fact, both JP Morgan and Morgan Stanley cut 2nd quarter GDP estimates to 1% from 2.25% and 1.9% from 2.2% respectively.”
“The [US] trucking industry is officially in a recession, according to data tracked by ACT Research. After months of suggesting a pullback was possible, ACT President Kenny Vieth told FreightWaves on Thursday, July 11 that all metrics his firm tracks meet the technical definition of a recession – two consecutive quarters of negative growth.
““Every freight metric we look at has been negative for at least six months,” he said.”
““We are awash in debt – whether it’s auto loans, mortgages, corporate debt, credit card debt or student loans,” Cohan said. “Why? Because the Fed has decided that interest rates are going to be low for an extended period of time, and you get rewarded to borrow money. There’s going to be a colossal reckoning, in my opinion.”
“Cohan points out that at the time of the financial crisis there was about $5 trillion in corporate debt. Today, we’re getting closer to $10 trillion on corporate issuance, with a good portion of it sitting in junk territory.”
“Lower-income U.S. consumers are showing signs of weakness despite the strong market, and if the economy enters a recession, any possible credit crunch could be “material,” according to UBS.
“Strategists led by Matthew Mish and Eric Wasserstrom wrote in a note Thursday that they’re worried about lower-income consumers who have seen little net worth improvement since the financial crisis. Debt burdens for many of those households have grown…”
“Mexico’s economy is showing signs of a greater slowdown than anticipated, the Central Bank of Mexico (Banxico) said on Thursday…
“Banxico blamed the slowdown mainly on a dip in domestic consumption and “weak” investment, but added external factors were also in play.
“One key uncertainty weighing down the economy is that the United States and Canada have yet to ratify the United States-Mexico-Canada Agreement…”
“As Beijing considers how to cushion the blow from trade, it’ll also have to weigh the country’s other major challenge: debt. China’s total debt surged to 271% of gross domestic product last year, from 164% before the global financial crisis, according to estimates by Bloomberg Economics.
“That’s left officials wary of rolling out any broad-based stimulus.”
“The case for Chinese policy makers to ramp up stimulus grew stronger, as tepid domestic demand and falling commodity prices increase the risk of a return to factory deflation. Growth in China’s producer price index slowed to zero in June from a year earlier, the weakest reading in almost three years. Prices fell 0.3% from May.
“The downward trend accentuates fears of a return of deflation for manufacturing, which would erode company profits and increase debt repayment pressures.”
“Central China Securities claims borrower falsified documents Case adds to a string of frauds as defaults surge in China Central China Securities Co. said two asset management products totaling 240 million yuan ($35 million) are in danger of defaulting after the borrower falsified documents.
“The brokerage said Thursday that it conducted follow-up checks on the products following missed payments to investors in April and May and found that documents used to obtain financing had been fabricated.”
“Auto suppliers Johnson Electric Holdings and Sensirion slashed their earnings forecasts on Thursday, blaming a slowdown in car sales and pessimism about the prospects of a Chinese car sector recovery.
“The news is the latest to signal weaker global industrial activity and ripples from a trade war that has already forced China’s Geely Swiss engineering company ABB Germany’s Aumann and chemicals giant, to warn of turbulence ahead.”
“An unexpected contraction in Singapore’s economy sent a warning shot to the world economy as simmering trade tensions wilt business confidence and activity.
“Gross domestic product in the export-reliant city state shrank an annualized 3.4% in the second quarter from the previous three months, the biggest decline since 2012.
“That was worse than the 0.5% expansion forecast in a Bloomberg survey of economists…”
“Against the backdrop of a rising threat of a no-deal Brexit, the central bank used its twice yearly financial stability report to say that UK, EU and international banks operating in London had made progress planning for a disorderly departure.
“However, it warned that about half of EU companies using banks registered in Britain could be cut off from their banking services after the Halloween Brexit date, as they had yet to fully prepare.”
“The birth of a baby in the small town of Acquaviva Platani, in inland Sicily, is such a rare event that the village bells toll to celebrate the arrival.
“With just 800 inhabitants Acquaviva is among thousands of Italian towns risking extinction in the coming decades, as the country faces an unprecedented crisis of population decline.”
“…there’s a real danger that more QE would not be as effective as it was the first time during the financial crisis.
“There’s also doubts as to how effective negative interest rates are with the evidence so far from Japan and the euro area pointing to only limited success in lifting inflation…
“This raises the question of how central banks would respond to an actual recession or even a new global economic crisis.”