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Market calls on global recession looking increasingly credible

Publication Date: 11 Feb 2019 - By Gaurav Sharma (Editor ReachX) By Gaurav Sharma (Editor ReachX)
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Macro Investment Strategies Multi Asset Global

An assessment of economic news-flow indicators by Société Générale suggests severe damage to global growth dynamics is fast appearing on the horizon.

In a recent investment note to clients, Arthur van Slooten, Global Asset Allocation Strategist at Société Générale, said key market themes, such as economic momentum, monetary and fiscal policy, inflation and risk point to “severe damage” to global growth momentum. “With a typical lead time of around three months, the sharp drop in our indicators suggests a continued contraction of global industrial production.”

(Source: Société Générale)

The rapid fall of economic newsflow indicators is not restricted to just Europe or China but concerns the US as well, van Slooten noted. 

“Currently, our US economic news-flow indicator is at levels that count among the 7% lowest readings since 1998, justifying comparisons with 2000 and 2007. This conveys a much more cautious message than the ISM index (see chart above) which seems to be lagging on the downside.”

It all means the “next recession” could come sooner than expected. 

“Two leading indicators, the US yield curve and our US ECNI, have realigned and are pointing to slower growth. After the sharp drop in US economic news-flow, it now matches the signal from the US yield curve that is close to inversion, already the case when looking at 1year forward rates,” the SocGen commentator noted further. 

van Slooten added that contrary to what may be suggested by the sharp market recovery since the lows of December 2018 (S&P500 +16.4%), the more dovish tone from the US Federal Reserve should not be mistaken for a return of Goldilocks. 

“The damage to economic momentum and earnings seems real. This time, easy monetary policy may lack the strength to turn the tide and avoid a recession.”

 

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