“…there is room for markets to make new highs in the next few months. In fact, one can imagine several scenarios on how these new highs could come about
“Central banks could embark on emergency interest rate cuts and reintroduce quantitative easing programs to force more cash into equities again. A sudden end to a trade war, with an attempt to save face by both sides, could certainly spark a sustained global relief rally that may end up averting or delaying a recession.
“Indeed, the Trump administration, eager to avoid a recession ahead of the 2020 election, may find itself in a position to end the trade war sooner rather than later. But the administration is still faced with several historic miscalculations of its own making. The massive tax cuts of 2017 have produced little in the form of growth other than a temporary sugar high. Growth is slowing. Long gone are the promises of 4% GDP growth. In fact, growth is looking to drop below 2% in lieu of a trade deal. The only thing that has been growing are deficits, which are on pace to hit $1 trillion this year already.
“All of these are signs that the risk of a global recession is a clear and present danger.
“This is a very tricky environment for investors to navigate through. History suggests there is time to take advantage of future rallies to prepare for the next recession and raise cash before a major market downturn does unfold. But global economic data suggests a global recession may come a lot sooner than anyone anticipated.
“And this reveals an uncomfortable truth: We’ve never faced a recession with so much debt and so little Fed ammunition available and with negative rates still in effect in many countries. There’s no playbook for this. Historic data may be of little predictive use.
“A sudden end to the trade deal may be imperative — without it we don’t have much time before the next recession begins.”
“There are weeks when the markets lead the fretting, and others when the numbers dictate. And then there are weeks — like this one — when markets, data and politics all point to a darker global outlook.”
“Stock markets have taken fright over a number of warning signs from key economies, the latest this week being the inversion of the US bond yield curve and news of a contraction in the German economy. Here is a guide to [a few of] the trouble spots in the global economy that are rattling investors.”
“The worry I have is not so much the vagaries of the stock market, but rather the perception of the future direction of the stock market and its impact on hiring…
“When the CEO and upper management believe that the economy will slow down, they will hit the brakes. This entails laying off employees, instituting a hiring freeze and—through attrition—when people leave, they won’t be replaced. When enough companies do this, it becomes a self-fulfilling, downward spiral.”
“Truckers have for months been sounding the alarm about a “bloodbath” in their $800 billion industry… Trucking is often looked at as a leading indicator of where the rest of the economy is headed.
“As 71% of America’s freight is moved on trucks, companies foreseeing needing fewer trucks is typically an omen of an economic downturn: If manufacturers are producing less and people are buying less, there’s less of a need to move goods.”
“Mexico’s central bank on Thursday cut its key lending rate for the first time since June 2014, citing slowing inflation and increasing slack in the economy, and fueling expectations that further monetary policy easing could be on the way.”
“Argentina’s historic market collapse has sparked fears that South America’s second-largest country is on track for yet another default. A stunning result in primary polls over the weekend set off a shockwave in financial markets, with the country’s stock market tumbling 48% in dollar terms on Monday.”
“Real estates classifieds company Domain Holdings Australia Ltd on Friday posted a 29.3% fall in annual underlying profit, hurt by the sharpest property downturn in a generation.”
“New Zealand’s manufacturing activity contracted in July for the first time since 2012, a survey showed on Friday, as new orders and employment conditions worsened.
“The Bank of New Zealand-Business NZ’s seasonally adjusted Performance of Manufacturing Index (PMI) was 48.2, down 2.9 points from June’s downwardly revised 51.1.”
“Britain’s banks have warned the government that they will have just hours to turn around their systems if the UK crashes out of the European Union without a deal.”
“Government bond yields in the euro area hovered near record lows on Friday, reflecting heightened expectations for European Central Bank easing soon and concern about global recession risks…
“ECB policymaker Olli Rehn on Thursday flagged the need for a significant easing package in September, sending yields across the bloc to new lows.”
“German lenders are in a uniquely dangerous position compared to their European counterparts, according to Ronit Ghose, global head of banks research at Citi. The European banking sector has been struggling with profitability ever since the financial crisis… The Stoxx Europe banks has fallen 45% over the past 10 years. This in comparison to the U.S.-focused KBE bank ETF, that tracks banks stateside, has added 86%.”
“Negative interest rates, toppling bond yields, greater regulation and rising recession signals have wiped out most of the value of European banks, with their shares now at meltdown prices approaching the days of the Berlin Wall…
“That means the banks are worth now what they were when Greece, Ireland and Portugal needed bailouts, Cyprus ordered its banks to seize some deposits and Spain’s banks were saved from collapse only by a government rescue.”
“In the increasingly topsy-turvy world of bonds, Japan’s notoriously low yields are starting to look high for some investors.
“While the Asian market is historically identified with poor yields and subdued trading thanks to decades of ultra-easy monetary policy, that perception is now being upended as a frenzied global debt rally squeezes returns elsewhere.”
““Negative yielding debt has quickly become a new normal, which is a staggering place to find ourselves,” said David Absolon, investment director at Heartwood Investment Management, the UK asset management arm of Sweden’s Handelsbanken.”
“Two decades ago, well over half of the global bond market boasted yields of at least 5 per cent, according to ICE Data Indices. The post-crisis splurge of central bank bond buying and rate cuts lowered this to under 16 per cent a decade ago, but investors could still find plenty of higher yielding debt. Today, a mere 3 per cent of the global bond market yields more than 5 per cent — the lowest share on record.
“Indeed, truly high-yielding debt is now almost an endangered species. Bonds with yields of more than 10 per cent amount to just 0.4 per cent of the global fixed income universe, according to ICE.”
“In a recession, manufacturers have to be careful about the impact of slowing down payments to key suppliers.
“If you slow down how fast you pay them, their financial integrity may be impacted.
“Many global supply chains rely on Chinese suppliers and contract manufacturers. China’s industrial output slumped 4.8% in July, for its’ weakest reading in 17 years. Paying small suppliers more slowly in at risk economies could tip them out of business.”