Markets Are Right to Worry About Growth
The overhang of a potentially enduring oil shock tempers the optimism, as the probability of that outcome has increased.
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Quite rightly, global markets have switched from fretting over an inflationary shock from the war in Iran to worrying about growth. The pivot can support investors if a recession is avoided. It also increases the risk that the global economy tips the wrong way.
The risk for higher yields has been eclipsed by investors recalibrating to focus on growth. It’s a justified shift because sky-high oil prices typically end in recession causing central banks to cut interest rates, not raise them.