LIVE MARKETS-We're not yet pricing a recession

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WE'RE NOT YET PRICING A RECESSION

Even after all the turmoil of the last few weeks, Deutsche Bank have taken a look at moves in equities, credit spreads, and oil, and find the moves have been shallower than in recent recessions.

They conclude "markets clearly don’t see a recession as inevitable ... but of course, the flip side is that with markets not fully pricing in a recession, that opens significant downside risks if we do get one."

As to those moves themselves:

-In equities, the S&P 500 .SPX has fallen nearly 14% from its mid Feb peak, and was down nearly 19% at one point. However, that's still less than for the past five recessions.

-U.S. high yield credit spreads have widened to 397 bps, but that's nothing compared to Covid (1100 bps) or the global financial crisis (1971 bps)

"Admittedly those were very serious recessions by historic standards, but even in the 2001 recession, HY spreads moved above 900bps," says DB.

- Oil is a bit more complicated since some recessions are caused by high oil prices themselves, but DB say looking just at recessions when oil prices weren't a contributing factor, the declines are much less.

Brent LCoc1 is down 10% since April 2, (as of Tuesday's close).

"That’s a serious decline, but it’s nothing like the two-thirds decline for Brent crude we saw in both Covid-19 and the GFC, or even 2001."

Why aren't markets pricing a recession?

DB say: "There's still a lot of doubt about whether one will happen, not least given the prospect of a fresh extension in the tariffs beyond the 90-day deadline, as well as the prospect of trade deals between the US and other countries that could see tariffs start to come down."

(Alun John)

EARLIER LIVE MARKETS POSTS:

STOXX AT THREE-WEEK HIGH, VOLATILITY DOWN CLICK HERE

EUROPE BEFORE THE BELL: ON THE REBOUND CLICK HERE

MORNING BID: TRUMP'S FED BACKFLIP SETS OFF RELIEF RALLY CLICK HERE