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Inside the Market No trade deal expected at G20 this week. That means global recession, according to UBS economist

A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Global markets are pessimistic about the prospects for a U.S./China trade deal resulting from talks at the G20 meeting this week, which, if we are to believe UBS economists, is really bad news for investors across the globe,

“While escalation isn’t what UBS expects, a failed meeting between President Donald Trump and China’s Xi Jinping that results in a new wave of tariffs would mean “major” changes to global GDP and market forecasts, global head of economic research Arend Kapteyn wrote in a note. If the trade war escalates, “we estimate global growth would be 75bp lower over the subsequent six quarters and that the contours would resemble a mild ‘global recession’ —similar in magnitude to the Eurozone crisis, the oil collapse in the mid-1980s and the ‘Tequila’ crisis of the 1990s,” he wrote.”

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“UBS: The globe is headed for a recession and bear market if this week’s US-China trade talks fail”- CNBC

“Trump and Xi to seal a deal? Traders aren’t holding their breath” – BNN Bloomberg

“@RobinWigg UBS with a big call. Predicts global stock markets will slide 20 per cent if there isn’t a trade agreement between the US and China” – (research excerpt) Twitter

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Prominent strategists have starkly opposing views of equity markets’ prospects if the Federal Reserve begins cutting rates as expected.

Andrew Garthwaite from Credit Suisse is bullish,

“In the 20th century, the ‘Fed put’ worked well, with Fed action tending to help avert recessions and bear markets (the three cuts in 1995 and 1998 led to strong market rallies). However, it has worked very badly in the 21st century (apart from the first 21-27 days following the first rate cut), with equities on average down 11% three months later. We think that this occasion is more likely to see a replication of the 1995 and 1998 experience … Financial conditions are looser now than at the time of any first rate cut in the past five cutting cycles. Economic momentum is better than that seen when the Fed first cut rates in prior cycles… dollar weakness is key as it effectively exports US monetary policy, forcing emerging market central banks, the ECB and BoJ to ease.”

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The more bearish case comes from Morgan Stanley ‘s U.S. equity strategist Michael Wilson,

“The case for material upside is getting harder. Our view remains that the US economy is experiencing a material slowdown after running too hot last year and this slowdown is now manifesting itself in poor earnings growth and deteriorating economic conditions. If the Fed is cutting rates because it's truly the end of the cycle, rather than the Fed simply taking out insurance against that outcome, it has much different implications for equity markets. The evidence is building that it's more the former than the latter.”

“@SBarlow_ROB Garthwaite thinks Fed can save the day ‘ – (research excerpt) Twitter

“ @SBarlow_ROB MS: "If the Fed is cutting rates because it's truly the end of the cycle, rather than the Fed simply taking out insurance against that outcome, it has much different implications for equity markets." – (research excerpt) Twitter

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Tweet of the day:

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Diversion: “SpaceX flies its massive Falcon Heavy rocket in what Elon Musk billed as the firm’s most difficult launch ever” – (video) Bloomberg

Newsletter: “The biggest asset bubbles in history” – Globe Investor

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