In our Economic & Strategy note this month, we had said that the probability of a recession/slowdown in the next few months as indicated by inverted yield curve in the US was elevated but probably overstated.
DBS believes that it is much easier for the curve to invert compared to previous cycles. The very large balance sheets of major central banks continue to exert pressure on longerterm yields, resulting in a flatter yield curve and therefore could be easily inverted.
DBS’ strategy team believes global equity markets are likely to continue to be volatile during the month of April with a downside bias. While the Fed sent a dovish signal last month, which was generally positive for the Asian markets, participants will likely shift their attention to slowing economic growth now that the yield curve has inverted – a development that is stoking recession fears. Moreover, stress is also seen in some of the emerging markets in other regions such as Turkey, Argentina and Brazil due to domestic political and economic concerns. As in the emerging market rout in August and September last year, there are risks that some of these stresses could flow through to Asia. Thanawat Patchimkul, Head of Research, DBS Vickers Securities (Thailand)