Bond markets and dovish central banks are flashing warnings that a global economic slowdown could be even closer than initially expected.
Most sovereign bond yields are at their lowest levels in years.
Yields in Australia and New Zealand dropped to record lows after a closely-watched part of the US curve inverted on Friday as investors wager that the Federal Reserve will need to cut rates.
Trading volumes in Treasury futures were double the norm during Asian trading, while Japan’s 10-year yields fell to the lowest since 2016.
An economic slowdown does little favours for the oil market, where Nigeria expects over a third of its revenues between 2019 and 2021. Oil prices tend to fall in a slowdown on the back of softer demand.
Brent crude oil futures climbed 30 cents to $67.33 a barrel Monday, slightly pairing losses from Friday when cautious remarks by the US Federal Reserve caused 10-year treasury notes to slip below three-month yields for the first time since 2007, sparking fears of a recession in the world’s largest economy.
Historically, an inverted yield curve, where long-term rates fall below short-term ones, has pointed to an upcoming recession and there are signs that the oil market is getting worried.
Historical data also shows that wherever economic growth goes, oil prices follow, immediately or shortly after.
In acknowledgement of a likely slowdown, the Bank of England cut its 2019 growth forecast to 1.2 percent from 1.7 percent, citing a 25 percent chance of a recession, while the European Central Bank announced surprise plans to stimulate the Eurozone.
The negative sentiment surrounding the global downturn was further affected by manufacturing output data from Germany. Germany’s manufacturing output fell to the lowest level in six years in March, according to a report from IHS/Markit research. The manufacturing activity shrunk for the third straight month.
A “wider trade deficit symptomatic of an overvalued dollar” and a decline in the “value of Nigeria’s exports as dollar weakens” are some of the implications of a global economic slowdown for Nigeria, said Bismarck Rewane, an economist and CEO of advisory firm, Financial Derivatives.
In addition to lower oil prices, emerging market assets typically take a beating in the time of an economic recession, which would mean more pain for Nigerian equities, which have somehow managed to escape a habitual post-election bounce for the first time since 1999.
Nigerian stocks are down 1.2 percent year to date, according to official data, as equities hit a fresh low of 7 times earnings, effectively making them some of the cheapest stocks globally.
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