Invest
Weakening economy already experiencing 3 signs of a global recession, economist warns
Invest
Weakening economy already experiencing 3 signs of a global recession, economist warns
Central banks cutting rates, the risk-free rate flattening or inverting and the break-even rates collapsing are three signs that the markets are headed for a global slowdown, an economist has warned.
Weakening economy already experiencing 3 signs of a global recession, economist warns
Central banks cutting rates, the risk-free rate flattening or inverting and the break-even rates collapsing are three signs that the markets are headed for a global slowdown, an economist has warned.
The managing director, chief economist and head of research at RBC Capital Markets, Su-Lin Ong, was speaking at the Bloomberg Asia Briefing Live when she outlined the bond market signs that should be warning investors of an impending global slowdown.
This forecast is despite Treasurer Josh Frydenberg having warned investors about the dangers of over-correcting after Tuesday’s correction in the equities market.
Global central banks
Bond markets across the G7 nations, or the seven most advanced economies in the world, are showing signs they expect monetary policy to continue easing in order to get growth back on track.
“It has been a particular volatile time in global markets, particularly in the last week or so,” Ms Ong noted.
Explaining the instructive nature of bond markets, Ms Ong said their current state is telling investors that the central banks are expected to “come to the party” through rate cuts.
“The markets are looking for a nearly a full percentage point of further easing from the Fed. There are expectations of Bank of Canada following at some point, Europe as well – which is already at minus 0.4 per cent. Clearly the Reserve Bank here has been active. [And] New Zealand delivered a 50 basis point cut yesterday,” she said.
According to the economist, the markets have already factored in future rate cuts as central banks continue to support lower growth numbers.
“There is very much anticipation that there will be further global easing to support what looks increasingly like a slowdown in growth,” she continued.
The risk-free rate
The risk-free rate, or the 10-year bond market as it is commonly known, has flattened and in some cases been inverted, which means the short-term yields are higher than the longer-term yields, Ms Ong said.
In the bond market, the effect of this is that long-term debt instruments are offering lower rates of interest than short-term debt instruments.
“What’s instructive when we look at 10-year bond yields (the risk-free rate), these yields have collapsed in the last few months with a particularly sharp leg down more recently. In some countries, like Australia, they are at historic lows,” said Ms Ong.
Break-even rates
Break-even rates in the bond market are also showing signs of longer-term lower inflation rates, Ms Ong flagged.
“It really is an indication from markets of inflationary expectations,” she said.
Noting that this “is what’s worrying policymakers globally”, Ms Ong said that in some cases, such yields are sitting at historically low levels.
“I’ve worked in markets long enough to know they don’t always get the timing right, but the direction is usually right,” she continued.
Concerns about weaker growth, risk of recessions, heightened geopolitical risks, relying on central banks to come to the rescue and this real embedded low inflation [are signs of a weakening economy],” Ms Ong concluded.
About the author
About the author
Shares
Cannon-Brookes tries to block AGL demerger
Mike Cannon-Brookes is not giving up on AGL after the latter announced 15 June as the date of the demerger vote. ...Read more
Shares
Qantas set to acquire Alliance Aviation
The two airlines have entered into a scheme implementation deed. ...Read more
Shares
Bond and share investors may shrug off RBA’s rate hike
As mortgage holders reel from the prospect of having to reach deeper into their hip pockets to make bigger repayments following the Reserve Bank of Australia’s (RBA) interest rate hike from 0.1 per ...Read more
Shares
How to buy Shares: A beginner’s guide in 2022
So you want to get in on the stock market action? Congratulations, that’s an exciting step! But first, there are a few things you should know before you buy your first shares. ...Read more
Shares
Elon Musk chokes up on bid to swallow Twitter
The battle of the bird has intensified over the last week, as Tesla and SpaceX founder Elon Musk has ramped up his aggressive campaign to buy the entirety of social media giant, Twitter. ...Read more
Shares
How to Make Money in Short Selling
What is short selling? There is a common practice for people who actively trade in the stock market, which is to “buy low and sell high”, but what if you can still make money by doing the opposit...Read more
Shares
Tesla boss becomes biggest Twitter shareholder
Elon Musk, head of Tesla Inc. and the world's wealthiest individual, has swallowed up a bundle of shares in the social media giant, Twitter. ...Read more
Shares
Sharemarkets to remain constrained for much of 2022
2022 is going to remain a more constrained year for sharemarkets, AMP’s chief economist said. ...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Shares
Cannon-Brookes tries to block AGL demerger
Mike Cannon-Brookes is not giving up on AGL after the latter announced 15 June as the date of the demerger vote. ...Read more
Shares
Qantas set to acquire Alliance Aviation
The two airlines have entered into a scheme implementation deed. ...Read more
Shares
Bond and share investors may shrug off RBA’s rate hike
As mortgage holders reel from the prospect of having to reach deeper into their hip pockets to make bigger repayments following the Reserve Bank of Australia’s (RBA) interest rate hike from 0.1 per ...Read more
Shares
How to buy Shares: A beginner’s guide in 2022
So you want to get in on the stock market action? Congratulations, that’s an exciting step! But first, there are a few things you should know before you buy your first shares. ...Read more
Shares
Elon Musk chokes up on bid to swallow Twitter
The battle of the bird has intensified over the last week, as Tesla and SpaceX founder Elon Musk has ramped up his aggressive campaign to buy the entirety of social media giant, Twitter. ...Read more
Shares
How to Make Money in Short Selling
What is short selling? There is a common practice for people who actively trade in the stock market, which is to “buy low and sell high”, but what if you can still make money by doing the opposit...Read more
Shares
Tesla boss becomes biggest Twitter shareholder
Elon Musk, head of Tesla Inc. and the world's wealthiest individual, has swallowed up a bundle of shares in the social media giant, Twitter. ...Read more
Shares
Sharemarkets to remain constrained for much of 2022
2022 is going to remain a more constrained year for sharemarkets, AMP’s chief economist said. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
