“Keep Your Seatbelts Fastened”: Here Are Morgan Stanley’s Five “Late Cycle” Warning Signs

Sunday, April 8, 2018
By Paul Martin

by Tyler Durden
Sun, 04/08/2018

Two weeks ago, we reported that according to the latest Bank of America Fund Manager Survey, no less than 74% of respondents answered that the global economy is in “late cycle:” the highest percentage in survey history, while at the same time respondents voiced the highest inflation expectations in over 13 years. As a reminder, when global growth turns south coupled with inflation you get “stagflation”, and when the result is an abrupt halt to the “late cycle” economic expansion, recessions begins.

And, judging by last week’s market reaction, the broader market is starting to agree that the world economy is if not on the edge of recession (although JPM’s observation that the OIS curve has once again inverted for the first time in 13 years is the clearest confirmation of just that), then very, very “late cycle.”

It is therefore not surprising, that with a record number of people convinced – and the market now too – that a recession may be imminent, that Morgan Stanley picked the topic of where in the economic cycle we are for its “Sunday Start” piece on what’s next in global macro.

As the bank’s global co-head of economics, Chetan Ahya, writes this morning, while in 2017, “the global economy roared back to life, as a synchronous recovery in developed (DM) and emerging (EM) markets propelled growth to a 3.7% annual average” this is now decidedly over, having reversed rapidly in 1Q18, “as DM growth has moderated alongside the rising risk of protectionism, renewing concerns over the length of the global expansion cycle.” In fact, as we showed last week, the global economic surprise index just turned negative for the first time since July 2017.

The Rest…HERE

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