Dump those global-recession worries, the big money says

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Few big money managers buy the idea that we’re headed for a global recession, a new Merrill Lynch & Co. survey shows.

If you want something to worry about, focus on inflation, they say.

The money pros’ views are more optimistic on the economy than U.S. consumers’ views in a Los Angeles Times/Bloomberg poll this month. (Those results are here.) But the two are of the same mind on inflation.

Merrill polls money managers worldwide each month for their take on markets and the economy. The latest survey, performed May 2-8, tallied the opinions of about 200 managers who oversee a total of $615 billion.

Just 18% of the managers said they believed the world has tipped into recession, down from 24% in April. And most don’t see a global recession on the horizon. Only 6% said a recession was ‘very likely’ in the next 12 months and 23% said one was ‘fairly likely.’ Sixty-nine percent said recession was either ‘fairly unlikely’ or ‘very unlikely,’ up from 58% in April.

Inflation is what’s making these investors nervous. Asked where they thought global core inflation would be in 12 months, 53% now expect it to be higher, up from 44% who said so in April.

And that, in turn, is affecting the managers’ views of where long-term interest rates are headed. Thirty percent now say long-term bond yields will go ‘a lot higher’ in the next 12 months, up from 18% in April, while 50% expect yields to be ‘slightly higher’ and 20% see them unchanged. None predicted yields would fall.

Given the fund managers’ views on the economy and interest rates, maybe it’s no surprise that global stock markets continue to rally -- and that government bond yields continue to rise.