Are global recession fears justified?
The slip in emerging market currencies, emerging market stocks sharply underperforming, and the sharp drop in industrial metal prices suggest global markets are spooked about the potential for a global recession, Instreet Investment believes.
Instreet managing director, George Lucas, said fixed income markets seemed confident that the US Federal Reserve would hold rates indefinitely.
"Investors in Fed funds futures put the odds of a rate rise next month at only four per cent and are now saying there is a 54 per cent chance that there will be no rate rise this year at all," Lucas said.
However, Lucas said that these expectations only made sense if there were fears of a very slow global economy but data showed it was a mixed picture.
On the positive end, average earnings growth ticked back up to 2.5 per cent, above the Fed's inflation target of two per cent and was ample justification for a rate rise, and while earnings the US and Europe looked terrible, they were better than broker forecasts, he said.
However, US unemployment increased slightly and payroll was the lowest in seven months and weaker than expectations, and there were more political uncertainties with Greece and Brexit showing up again in headlines, Lucas said.
He noted that although Australian yields were at record lows they were still much higher than the comparable bonds of other developed markets like the US, UK, and Germany.
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