The world economy is on the leading edge of a recession, UBS said on Monday, which could prompt all major central banks to ease monetary policy in response.
The U.S.-China trade war is amplifying fears of a global downturn —which according to UBS means President Donald Trump may get his wish for the Federal Reserve to cut interest rates.
Thus far, the world’s two largest economies have not been able to strike a deal to end their trade dispute, and an additional $300 billion worth of tariffs are currently on the table.
“U.S. tariff escalation is NOT our base case,” the bank said. “But if escalation is not averted in the next week or so … we anticipate making major changes to our forecasts.
We’re already in recession, here’s what to do, says economist who called last bubble
Stock markets are looking like hard work for the day ahead, thanks largely to escalating tensions between the U.S. and Iran.
Investors, who are awaiting this week’s G-20 get together between President Donald Trump and China’s leader, are now juggling a tense war of words between Tehran and D.C. Just words, we hope.
We could use a bit of good news right about now. Enter our call of the day, from economist Gary Shilling, known for predicting bubbles like the housing debacle of 2008. Shilling talks about another worry for investors — a big bad recession – in an interview with digital financial media group Real Vision.
“I think we’re probably already in a recession, but I think [it will] probably be a run of the mill affair, which means real GDP would decline 1.5% to 2%, not to 3.5% to 4%, you had in the very serious [past] recessions,” said the president of money manager A. Gary Shilling & Co. He also lays claim to having forecast a global inventory glut that led to the 1973 to 1975 U.S. downturn.
Shilling says some of the biggest potential drivers for an economic pullback — heavy corporate borrowing, a strong dollar that’s pinching emerging markets, and trade wars — are fairly small potatoes versus the problems of the past.
Shilling says stocks probably wouldn’t fall under that GDP scenario. If they did, he predicted a fall akin to the average drop during the last three recessions — 22% from the peak. That scenario, he said would roughly take the S&P a couple hundred points below the Christmas Eve low of 2,416.62.
He also predicts the 10-year Treasury yield will drop to 1%, if that type of recession is borne out along with lower inflation. The yield on the 30-year T-bond would drop to 2%. “Actually, if that happens on a 30-year coupon bond, you make about 20% on your money,” he said.