Braced for the global downturn

It's the calm before the storm. The recent market volatility was ostensibly triggered by the US-China trade conflict turning into a full-blown currency war. But at heart, it is about the inability of the US Federal Reserve to convince us that its July rate cut was merely "insurance" to protect against a future downturn. As any number of indicators now show - from weak purchasing managers' indices in the United States, Spain, Italy, France and Germany, to rising corporate bankruptcies and a spike in US lay-offs - the global downturn has already begun.

Asset prices will undoubtedly begin to reflect this, and possibly quite soon. China may have temporarily calmed markets by stabilising the yuan. But we are in for what Mr Ulf Lindahl, chief executive of AG Bisset Associates currency research, calls "a summer of fear". He expects the mean reversion in the Dow that started in January last year to turn into a bear market that lasts a decade.

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A version of this article appeared in the print edition of The Straits Times on August 13, 2019, with the headline 'Braced for the global downturn'. Print Edition | Subscribe