Business Express is an online portal that covers the latest developments in the world of business and finance. From startups and entrepreneurship to mergers and acquisitions, Business Express provides reporting on the stories that matter most to business leaders and decision-makers.The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.
2023 12 01T061117Z 2 LYNXMPEJB0133 RTROPTP 4 USA YELLEN FSOC - Business Express

Markets pin hopes on soft landing, with one eye on recession risk


By Yoruk Bahceli, Dhara Ranasinghe and Naomi Rovnick

(Reuters) – A stellar rally in equities and bonds suggests market confidence is high for the world economy to reach a soft landing after a run of aggressive interest rate hikes.

Yet labour markets are softening, the euro zone faces recession and China’s property sector is in crisis.

Here’s what some closely-watched market indicators say about global recession risks:

1/ AMERICAN EXCEPTIONALISM?

The U.S. economy grew 5.2% in the third quarter, defying dire recession warnings.

But unemployment is rising, nearing a closely-watched ‘Sahm rule’ threshold, that has shown historically a recession is underway when the three-month rolling average unemployment rate rises half a point above the low of the prior 12 months.

The picture is bleaker elsewhere. China grew faster than expected in the third quarter but manufacturing activity shrank for a second straight month in November. Britain’s economy avoided the start of a recession in the third quarter but still failed to grow.

The euro zone contracted 0.1% in the third quarter and a business activity downturn remained broad-based in November, suggesting a year-end recession.

Economists broadly expect the global economy to slow next year but avoid a recession.

“The outlier is really the U.S.,” said Guy Miller, chief market strategist at Zurich Insurance Group.

“At a global level, growth has and will be disappointing,” he added.

2/ EVERYTHING RALLY

Inflation slowing quicker than expected has boosted bets on central bank rate cuts next year, fuelling a broad market rally pinned on a ‘soft landing’ scenario.

A global index of government and corporate investment-grade bonds in November delivered the best monthly return on record

U.S. 10-year Treasury yields tumbled over 50 basis points in November, the biggest monthly drop in over a decade.

World stocks rose around 9%, their best month since November 2020, when markets cheered COVID-19 vaccines hoping for economies to reopen.

“We are of the view that risks are to the downside heading into January, and suspect investors are underestimating the risks that persist, most notably slowing economic growth,” said Zurich Insurance’s Miller.

3/ DOUBLING DOWN

Don't miss out on any breaking news or insightful opinions!
Subscribe to our free newsletter and stay updated on the go!


By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

Traders have doubled down on 2024 rate cut bets, pricing in at least four 25 basis-point cuts from the U.S. Federal Reserve, the most since August.

Expectations are similar for the ECB, which is seen moving first among peers in April. Bets on the first cut have been brought forward swiftly, having been priced for July in late October, highlighting the darkening outlook for the bloc.

But these moves may also reflect expectations of rate cuts to prevent an overtightening of lending conditions as inflation falls, not only recession fears, with market prices suggesting interest rates will remain elevated for years to come.

“The market is extremely bullish on the economic outlook over the next five years,” said Apollo Global Management chief economist Torsten Slok.

4/ (DI)STRESSED

Corporate defaults globally this year reached 118 by September, nearly double the 2022 total, according to S&P Global, a worry for policymakers watching the impact of rate hikes that operate with a time lag.

Property companies are particularly badly hit, from Sweden’s SBB, Austria’s Signa and China’s Country Garden.

The Bank of England has urged lenders not to underestimate the risk of loan defaults as higher inflation and rates hit vulnerable borrowers. Business insolvencies in England and Wales rose 18% anually in October.

Euro zone lending to businesses has dropped for the first time since 2015.

Yet corporate debt markets show little concern, with the cost of insuring exposure to junk bonds in Europe through credit default swaps this week hitting the lowest since April 2022.

David Katimbo-Mugwanya, head of fixed income at EdenTree Investment Management, expected defaults to pick up next year.

“We’ve been telling clients, default risks here are quite apparent, but they’re not yet reflected in (corporate bond) spreads,” he said.

5/ WATCH OIL

Oil, which often tracks expectations for global growth, is down around 14% in the past two months — a period that coincided with worries that an Israel-Hamas war could disrupt supplies and push up prices.

Brent crude has dropped to $84, from almost $97 in late September, partly as Chinese and European economies weakened further.

If supply shocks resulting from the Israel-Hamas war become severe enough to push Brent crude to $150, a level it has never breached, a “mild and fleeting” global recession could result, Oxford Economics reckons.

 

(Reporting by Yoruk Bahceli, Dhara Ranasinghe and Naomi Rovnick; editing by Dhara Ranasinghe and Alexandra Hudson)

 

Recent Post: