BIG NEWS
6 | SHARES | 22 August 2019
I
nvestor fears over the future of the global
economy ramped up a notch this week as
'ĞƌŵĂŶLJ͛ƐĐĞŶƚƌĂůďĂŶŬĂĚŵŝƩĞĚƚŚĞĐŽƵŶƚƌLJ
could be heading for a recession.
The news adds to a so-called ‘wall of worries’,
already featuring a no-deal Brexit and the looming
ƉƌŽƐƉĞĐƚŽĨĂŶĂůůͲŽƵƚƵŶŝĮĐĂƟŽŶďŽƵƚďĞƚǁĞĞŶ
the US and China to declare the undisputed
heavyweight (trade) champion of the world.
All of which has led to an inverted yield curve,
ǁŚŝĐŚŵĂƩĞƌƐĂƐŝƚŝƐŚŝƐƚŽƌŝĐĂůůLJĂƉƌĞĐƵƌƐŽƌƚŽĂ
global recession one or two years down the line.
An inverted yield curve is where the return on
ƐŚŽƌƚͲĚĂƚĞĚŐŽǀĞƌŶŵĞŶƚďŽŶĚƐŝƐďĞƩĞƌƚŚĂŶƚŚĞ
return on long-dated ones.
Two-year US Treasuries, UK gilts and German
ďƵŶĚƐŐŝǀĞĂďĞƩĞƌƌĞƚƵƌŶƚŚĂŶϭϬͲLJĞĂƌŽŶĞƐ͕ǁŚŝůĞ
something similar has been seen in government
bonds from Japan, Australia, Hong Kong, Singapore
and South Korea.
ŽŶĚŝŶǀĞƐƚŽƌƐŶŽƌŵĂůůLJĞdžƉĞĐƚƚŽŐĞƚĂďĞƩĞƌ
return for holding bonds that aren’t due to be
ƌĞƉĂŝĚĨŽƌĂůŽŶŐƟŵĞďĞĐĂƵƐĞŽĨƚŚĞĂĚĚĞĚƌŝƐŬ͘
ƵƚŶŽǁǁŝƚŚLJŝĞůĚƐŶĞŐĂƟǀĞŽŶƐŽŵĞϭϬͲLJĞĂƌ
ďŽŶĚƐŝŶǀĞƐƚŽƌƐĂƌĞĞīĞĐƟǀĞůLJƉĂLJŝŶŐƚŽůĞŶĚ
the government money because they’d rather
guarantee a small loss now than risk a big one
later on.
Fund managers, analysts and economists
believe such indicators point to an imminent
global recession, but others think the worries
could be overblown.
The fortune of the world’s economy is typically
ƟĞĚƚŽŚŽǁƚŚĞh^ĚŽĞƐ͕ĂŶĚďŽƚŚƉƌĞƐŝĚĞŶƚŽŶĂůĚ
Trump and his chief economic advisor Larry Kudlow
have both dismissed the prospect of a recession,
ǁŝƚŚ<ƵĚůŽǁŽƉƟŵŝƐƟĐŽŶƚŚĞh^ĞĐŽŶŽŵLJ͘Why we could be
heading for another
global recession
And why investors have been hit hard by Argentina, including one
who lost $1.8bn in a single dayEMERGING MARKET INVESTORS
HIT BY ARGENTINAƌŐĞŶƟŶĂŚĂƐďĞĞŶŝŶƚŚĞĚŽůĚƌƵŵƐƌĞĐĞŶƚůLJ͕
ĂŶĚƚŚĞƉĂƐƚǁĞĞŬŚĂƐƐĞĞŶƚŚĞĞĐŽŶŽŵLJ
ŵŝŶŝƐƚĞƌƌĞƐŝŐŶǁŝƚŚƚŚĞĐŽƵŶƚƌLJ͛ƐĐƵƌƌĞŶĐLJ
ƐŚĞĚĚŝŶŐϮϬйŽĨŝƚƐǀĂůƵĞĂŐĂŝŶƐƚƚŚĞĚŽůůĂƌ͘
dŚĂƚĐĂŵĞĂŌĞƌŵĂƌŬĞƚͲĨƌŝĞŶĚůLJƉƌĞƐŝĚĞŶƚ
DĂƵƌŝĐŝŽDĂĐƌŝƐƵīĞƌĞĚĂƌĞƐŽƵŶĚŝŶŐĚĞĨĞĂƚŝŶ
ƚŚĞĮƌƐƚƉŽůůŽĨƚŚĞĐŽƵŶƚƌLJ͛ƐĞůĞĐƟŽŶƐ͘
ŶĚŝƚŚĂƐŚŝƚƐŽŵĞĞŵĞƌŐŝŶŐŵĂƌŬĞƚŝŶǀĞƐƚŽƌƐ
ŚĂƌĚ͘^ƚĂƌĨƵŶĚŵĂŶĂŐĞƌDŝĐŚĂĞů,ĂƐĞŶƐƚĂď͕
ǁŚŽƌƵŶƐďŽŶĚĨƵŶĚƐĨŽƌ&ƌĂŶŬůŝŶdĞŵƉůĞƚŽŶ͕
ůŽƐƚΨϭ͘ΘďŶŝŶĂƐŝŶŐůĞĚĂLJĂƐŚĞŚĂĚĂůŽƚŽĨ
ŵŽŶĞLJŝŶǀĞƐƚĞĚŝŶƌŐĞŶƟŶĞďŽŶĚƐ͘
ƵƚŚĞŵŝŐŚƚŶŽƚďĞƚŚĞŽŶůLJŽŶĞĂīĞĐƚĞĚ͘
dŚŽƵŐŚƌŐĞŶƟŶĂŽŶůLJŵĂŬĞƐƵƉϮ͘ςйŽĨƚŚĞ
ĐŽŵŵŽŶůLJƵƐĞĚD^/ ŵĞƌŐŝŶŐDĂƌŬĞƚƐ/ŶĚĞdž͕
:WDŽƌŐĂŶŶŽƚĞĚƚŚĂƚŝŶǀĞƐƟŶŐŝŶƌŐĞŶƟŶĞ
ƐƚŽĐŬƐǁĂƐŽŶĞŽĨƚŚĞŵŽƐƚƉŽƉƵůĂƌƚƌĂĚĞƐďLJ
ĞŵĞƌŐŝŶŐŵĂƌŬĞƚŝŶǀĞƐƚŽƌƐůĂƐƚŵŽŶƚŚ͘INVERTED YIELD CURVE
10 year US goverment bond2 year