As I intimated yesterday, the IMF’s latest Global Financial Stability Report is a robust, deep dive into what lies beneath the surface of the world economy. And, alas, as I also suggested, it more than justifies our currently guarded approach to the equity markets.

Here’s another snippet: emphasis mine…

“An adverse scenario could be triggered by some of the risk factors discussed in Chapter 1, including escalating trade tensions. The same GDP shock is applied to all the countries—at half the average severity of the global financial crisis in terms of declines in GDP growth, whereas interest rates paid by firms rise to half the level in the global financial crisis. Based on the IMF staff corporate bonds valuation model, spreads are projected to widen significantly as corporate fundamentals deteriorate, economic uncertainty rises, and current misalignments disappear (Figure 2.7). Firms would face lower profits and—given heavy debt loads, valuation pressures, and likely limited market liquidity—would not be able to deleverage quickly. 

In this adverse scenario, debt-at-risk rises quickly as weaker profits and higher interest costs lower the ICRs (Figure 2.8, panels 1 and 2). In France and Spain, debt-at-risk is approaching the levels seen during previous crises; while in China, the United Kingdom, and the United States, it exceeds these levels.”