Markets pin hopes on soft landing, with one eye on recession risk
By Yoruk Bahceli, Dhara Ranasinghe and Naomi Rovnick
(Reuters) — A stellar rally in equities and bonds suggests market confidence is high for the world economy to reach a soft landing after a run of aggressive interest rate hikes.
Yet labour markets are softening, the euro zone faces recession and China's property sector is in crisis.
Here's what some closely-watched market indicators say about global recession risks:
1/ AMERICAN EXCEPTIONALISM?
The U.S. economy grew 5.2% in the third quarter, defying dire recession warnings.
But unemployment is rising, nearing a closely-watched 'Sahm rule' threshold, that has shown historically a recession is underway when the three-month rolling average unemployment rate rises half a point above the low of the prior 12 months.
The picture is bleaker elsewhere. China grew faster than expected in the third quarter but manufacturing activity shrank for a second straight month in November. Britain's economy avoided the start of a recession in the third quarter but still failed to grow.
The euro zone contracted 0.1% in the third quarter and a business activity downturn remained broad-based in November, suggesting a year-end recession.
Economists broadly expect the global economy to slow next year but avoid a recession.
«The outlier is really the U.S.,» said Guy Miller, chief market strategist at Zurich Insurance Group (OTC:ZFSVF).
«At a global level, growth has and will be disappointing,» he added.
2/ EVERYTHING RALLY
Inflation slowing quicker than expected has boosted bets on central bank rate cuts next year, fuelling a broad market rally pinned on a 'soft landing' scenario.
A global index of government and corporate investment-grade bonds in November delivered the best monthly
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