The market is bracing for a global recession

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Financial markets seem to be bracing for a global recession.

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According to analysts at Citi, financial markets are "on their way" to pricing in a global growth recession, though incoming economic data indicates that this is "far from assured."

The caveat is that Citi defines a global growth recession as global GDP growth of less than 2%. The IMF, for its part, expects global GDP to grow by 3.4% this year.

"A global growth recession is far from assured but financial markets seem to be on their way to pricing one in," Citi wrote on Thursday.

"Financial conditions tighten as this process unfolds, thus increasing the probability of the outcome that investors and speculators were afraid of in the first place. Judging by anecdotal comments from recent client meetings, our sense is that real money investors, rather than panicked speculators, are increasingly participating in this de-risking."

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The key takeaway here is that Citi isn't citing commentary from people on CNBC or in The Wall Street Journal, but big money clients who can't exactly be nimble in shifting around their portfolios.

When a firm like Citi takes about a "real money investor," they're talking about someone overseeing upwards of a billion dollars on behalf of range of investors.

And many of these clients are investing on behalf of people who an expectation - or even a requirement - that their portfolio won't just shift from, say, a broad mix of large cap stocks to being net short the market in a matter of days.

As outlined by Deutsche Bank on Thursday, almost everything you can invest has lost money this year except for some government debt. And it seems that people just want out.

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Deutsche Bank

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And so when you're seeing these types of investors move their clients out of risk assets over time it isn't just a sentiment shift in the market but a positioning shift, and the latter is far more potent because this money won't just reverse its flow overnight.

As Citi writes, "It's hard to know what stops the rot and when that happens."

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