Global Recession? Almost Certainly No

2016 began very poorly for share markets. In the first week, the US share market had its worst week since September 2011, with the S&P500 index tumbling by 6%. One probably has to go back to the postwar period to find a worse start to the calendar year. The Australian share market fell by 5.8%. The rest of January wasn’t much better, with the Australian market down by 5.5% for the month and the US share market, as measured by the S&P500 index, down by 5.1%. The fundamental causes of this malaise are both well-known and inter-related. They include concern about weakness in the two largest economies - the United States and China - as well as worries about oil prices and exchange rates. In particular, there was increased speculation in January that the world may be about to return to recession after six years of only sluggish growth. The performance of the share market and of commodity prices, particularly oil, were taken as evidence of this: the “canary in the coal mine” theory. (VIEW LINK)