“Even though the S&P 500 is trading at lofty levels, skittish investors don’t believe the good times will last and instead are preparing for the worst.
“They’ve shifted $322 billion into money market funds during the past 6 months, in the biggest flight to safety since the 2008 financial crisis…
“Meanwhile, the latest release of the Global Fund Manager Survey by Bank of America Merrill Lynch reveals that leading investment managers around the world also are getting nervous, reporting that their holdings of cash, defensive stocks, and bonds are at historically high levels, with cash topping the list.
“Investors are suffering from “bearish paralysis” resulting from worries about the trade war, Brexit, the Trump impeachment investigation, and the possibility of a recession ahead, strategists at BofAML led by Michael Hartnett write in a recent note to clients, as quoted in another Bloomberg article.
“In just the 7-day period through Oct. 9, they observe that global equity funds saw $9.8 billion of net withdrawals, while bond funds recorded $11.1 billion of net inflows.
“Dealmaking world-wide is set to plunge by 25% next year as the risk of a global recession hits confidence and the upcoming US presidential election creates added uncertainty.
“The value of M&A will decline globally from $2.8tn in 2019 to $2.1tn in 2020, according to a new report by international law firm Baker McKenzie.”
“The Federal Reserve Bank of New York added $87.7 billion to the financial system Tuesday, using the market for repurchase agreements, or repo, to relieve funding pressure in money markets.
“Banks asked for $67.6 billion in overnight reserves, all of which the Fed accepted, offering collateral in the form of Treasury and mortgage securities.”
“St. Louis Federal Reserve Bank President James Bullard said global trade and other risks remain high for a U.S. economy that may slow more sharply than expected…
“Bullard also outlined the Fed’s playbook for dealing with a potential “ordinary recession”. He said the options to slash borrowing rates to zero, restart assets purchases and provide supportive policy promises, were still “state of the art”.”
“Get used to it. No peace and harmony ever when it comes to global trade, that is.
“The Bank of America Merrill Lynch’s monthly fund manager survey released Tuesday revealed 43% of investors surveyed believe the U.S.-China trade war “is the new normal versus 36% who think we will see a resolution before the 2020 U.S. Presidential election.””
“China caught traders off-guard with a surprise injection into the financial system via loans to banks, ahead of data on Friday which is expected to show a further slowdown in the domestic economy.
“The People’s Bank of China added 200 billion yuan ($28 billion) of one-year cash through the medium-term lending facility on Wednesday. It kept the interest rate steady.”
“The Bank of Korea on Wednesday cut its main policy rate by a quarter point to a record low of 1.25 per cent to shore up growth as the export-driven economy struggles with global trade frictions and weaker chip prices.
“Calls for monetary policy easing have increased recently, following the country’s first drop in consumer prices in September and 10 consecutive months of falling exports…”
“New Zealand’s central bank signaled more rate cuts, or even unconventional stimulus measures, may be needed to counter global headwinds, as figures on Wednesday showed the country’s annual inflation rate slowed in the third quarter…
“The Reserve Bank of New Zealand (RBNZ) has already cut its cash rate to a record low…”
“The downward revision of growth in Spain in the second quarter (from 0.5% to 0.4%), following that of the first quarter (from an optimistic 0.7% to 0.5%), and a slower rate of job creation, have disturbed forecasts and the economic climate…
“Without forgetting that the first test of governability will come after the sentence of the Supreme Court on the separatist prisoners, which could cause violent protests in Catalonia. Conclusion: the economy is slowing and there are too many political uncertainties over the future.”
“Scholz’s remarks that Germany would loosen the purse strings to fight any downward economic spiral came days before world financial leaders meet in Washington to discuss how best to counter a slowing world economy.
“Leading economic institutes earlier this month called on Chancellor Angela Merkel’s government to ditch its budget policy of incurring no new debt if the growth outlook deteriorates.”
“Central banks have little scope left to fight a crisis after a decade of cheap money, the International Monetary Fund warned yesterday as it downgraded world growth to its slowest rate since the 2009 recession.
“Should conditions deteriorate, “an internationally co-ordinated fiscal response” might be required, Gita Gopinath, the fund’s chief economist, said, in an echo of the response to the financial crisis in 2009.”
“There’s an “uncomfortably high” chance that a recession could hit the global economy in the next 12-18 months — and policymakers may not be able to reverse that course, an economist said on Wednesday.
““I think risks are awfully high that if something doesn’t stick to script then we do have a recession,” said Mark Zandi, chief economist of Moody’s Analytics. “I’ll say this also: Even if we don’t have a recession over the next 12-18 months, I think it’s pretty clear that we’re going to have a much weaker economy.”
Read the previous ‘Economic’ thread here and visit my Patreon page here.