According to the bank, the recession signal from the yield curve should not be underestimated. According to analysts, even the trade war remains behind the bonds.
Morgan Stanley stresses that the curve has reversed, most recently in March this year, but also emphasized the weighted curve. This yield curve, which is weighted against the Fed's and QE's tightening policy, has been reversed for six consecutive months.
The Bank also noticed this in December 2018, well before the recent escalations of the trade war, and since then the curve has been reversed. Investors in the case, who watch the war as a cause of the world's problems, place their hopes in the wrong place.
"Prepare for further disappointment with global growth, even to make a trade deal." - experts from the bank say. There is a risk that the S & P500 will fall below 2400, precisely because of the softer economic data.
The tensions between the US and China and the aggressive risk hedging are blamed for the fall in bond yields. Nearly $ 11 trillion of fixed income assets have a return below zero. And there is enough evidence to strengthen these risks. Morgan Stanley points out that the latest bad data from the US economy reflects activity in April, a month before the escalation of the war. In China, the situation is also deteriorating, with April data also worse than expected. Growth expectations in Europe and the US are also worse.
"That's why we think the recession will happen regardless of what is happening with the trade war." - specified by the bank. They warn that stock volatility may rise significantly.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
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