By Yoruk Bahceli, Dhara Ranasinghe and Naomi Rovnick
(Reuters) - A stellar rally in equities and bonds suggests market confidence is high for the world economy to reach a soft landing after a run of aggressive interest rate hikes.
Yet labour markets are softening, the euro zone faces recession and China's property sector is in crisis.
Here's what some closely-watched market indicators say about global recession risks:
1/ AMERICAN EXCEPTIONALISM?
The U.S. economy grew 5.2% in the third quarter, defying dire recession warnings.
But unemployment is rising, nearing a closely-watched 'Sahm rule' threshold, that has shown historically a recession is underway when the three-month rolling average unemployment rate rises half a point above the low of the prior 12 months.
The picture is bleaker elsewhere. China grew faster than expected in the third quarter but manufacturing activity shrank for a second straight month in November. Britain's economy avoided the start of a recession in the third quarter but still failed to grow.
The euro zone contracted 0.1% in the third quarter and a business activity downturn remained broad-based in November, suggesting a year-end recession.
Economists broadly expect the global economy to slow next year but avoid a recession.
"The outlier is really the U.S.," said Guy Miller, chief market strategist at Zurich Insurance Group.
"At a global level, growth has and will be disappointing," he added.
2/ EVERYTHING RALLY
Inflation slowing quicker than expected has boosted bets on central bank rate cuts next year, fuelling a broad market rally pinned on a 'soft landing' scenario.
A global index of government and corporate investment-grade bonds in November delivered the best monthly return on record
U.S. 10-year Treasury yields tumbled over 50 basis points in November, the biggest monthly drop in over a decade.
World stocks rose around 9%, their best month since November 2020, when markets cheered COVID-19 vaccines hoping for economies to reopen.
"We are of the view that risks are to the downside heading into January, and suspect investors are underestimating the risks that persist, most notably slowing economic growth," said Zurich Insurance's Miller.
3/ DOUBLING DOWN
Traders have doubled down on 2024 rate cut bets, pricing in at least four 25 basis-point cuts from the U.S. Federal Reserve, the most since August.
Expectations are similar for the ECB, which is seen moving first among peers in April. Bets on the first cut have been brought forward swiftly, having been priced for July in late October, highlighting the darkening outlook for the bloc.