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
3 themes Aussie investors are chasing in 2021
Australian retail investors believe electric vehicles, the sharing economy and large pharmaceutical companies to be the major winners in 2021, their trade active has revealed. ...Read more

Shares
Could healthcare stocks continue to rally in 2021?
Despite being one of the big winners during the COVID-19 pandemic, global healthcare is predicted to continue to perform strongly over the longer term, an industry expert has said. ...Read more

Shares
Why you should give the gift of investing this Christmas
Investors are being urged to think long-term before deciding on a Christmas gift, with experts pointing to more impactful gifting ideas. ...Read more

Shares
Crown faces share buybacks over alleged money laundering
Crown Resorts might be forced to buy back shares from investors after a class action against the casino’s governance and risk management failings caused a massive share price plunge in October. ...Read more

Shares
Airbnb skyrockets to nearly US$100bn public market debut
Airbnb has more than doubled its share price in its first day of trading as the company recorded one of the largest first day rallies in history. ...Read more

Shares
How investors can beat the market through ETFs
Despite being known to track an index, investors are being advised that exchange-traded funds have evolved and can now beat the very markets they were initially created to track. ...Read more

Shares
How first-time investors can plan their portfolios into 2021
It is more important than ever for first-time investors to have a clear strategy for managing their portfolios as we enter 2021. ...Read more

Shares
Back in the black: Qantas predicts breaking even in 2021
The national airline expects to break even in 2021, minus the costs of redundancy payments, according to an official statement. ...Read more

Shares
3 themes Aussie investors are chasing in 2021
Australian retail investors believe electric vehicles, the sharing economy and large pharmaceutical companies to be the major winners in 2021, their trade active has revealed. ...Read more

Shares
Could healthcare stocks continue to rally in 2021?
Despite being one of the big winners during the COVID-19 pandemic, global healthcare is predicted to continue to perform strongly over the longer term, an industry expert has said. ...Read more

Shares
Why you should give the gift of investing this Christmas
Investors are being urged to think long-term before deciding on a Christmas gift, with experts pointing to more impactful gifting ideas. ...Read more

Shares
Crown faces share buybacks over alleged money laundering
Crown Resorts might be forced to buy back shares from investors after a class action against the casino’s governance and risk management failings caused a massive share price plunge in October. ...Read more

Shares
Airbnb skyrockets to nearly US$100bn public market debut
Airbnb has more than doubled its share price in its first day of trading as the company recorded one of the largest first day rallies in history. ...Read more

Shares
How investors can beat the market through ETFs
Despite being known to track an index, investors are being advised that exchange-traded funds have evolved and can now beat the very markets they were initially created to track. ...Read more

Shares
How first-time investors can plan their portfolios into 2021
It is more important than ever for first-time investors to have a clear strategy for managing their portfolios as we enter 2021. ...Read more

Shares
Back in the black: Qantas predicts breaking even in 2021
The national airline expects to break even in 2021, minus the costs of redundancy payments, according to an official statement. ...Read more