It’s the calm before the storm. Last week’s market volatility was ostensibly triggered by the US-China trade conflict turning into a full-blown currency war. But at heart, it’s about the inability of the Federal Reserve to convince us that its July rate cut was merely “insurance” to protect against a future downturn. As any number of indicators now show — from weak purchasing managers’ indices in the US, Spain, Italy, France and Germany, to rising corporate bankruptcies and a spike in US layoffs — the global downturn has already begun.

Asset prices will undoubtedly begin to reflect this, and possibly quite soon. China may have temporarily calmed markets by stabilising the renminbi. But we are in for what Ulf Lindahl, CEO of AG Bisset Associates currency research, calls “a summer of fear”. He expects the mean-reversion in the Dow that started in January 2018 to turn into a bear market that lasts a decade.

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