Buckle up,

The abrupt slide in oil prices comes as leading economies enter 2019 with core inflation already running below 2%. Given the poor trend for metal prices since the spring, oil has finally woken up to the fact that global demand is waning.

The striking data about inflation is one of the reasons that securing a China-US trade detente matters, and why some investors still harbour hopes that Beijing will eventually undertake some serious stimulus. Neither looks a sure bet.

Many equity markets outside the US look cheap, especially after this week’s swoon, but they can stay that way if global growth has peaked. At this juncture, there’s a big question mark as to whether the European Central Bank and the Bank of Japan can end the era of negative overnight interest rates next year.

The ECB’s dilemma will come into focus when it meets on Thursday, but for the past five days it is the narrowing gap between short- and long-dated Treasury yields that has drawn the most interest. The difference between two- and 10-year yields dipped below 0.1 percentage points this week, the closest this barometer has been to an inversion since 2007.

Investors of course are well acquainted with the idea that an inverted yield curve is an early warning signal. In the past they have occurred six to 18 months before the economy entered a recession. In the previous cycle, the US 2/10s yield curve inverted in 2006 and largely stayed that way until mid-2007.

While Fed tightening has already left its mark on the important US housing and auto sectors, and the sugar rush of tax cuts fades from the economy next year, this week’s data show the current expansion will extend into 2019. Lest we forget, S&P 500 companies are still expected to increase profits next year. Also, a period of inversion may mark the point where the Fed stops its tightening policy, and that, alongside a weaker dollar, provides breathing room for global activity.

But just as the bond market foretold in 2000 and 2006, there is a growing wariness of late-cycle weakness, marked by plenty of corporate debt and signs of credit and balance sheet stress.

Whether equity and credit markets have the luxury of a final hurrah, as we saw in 2007 when the S&P 500 peaked in October of that year, is the most important question facing portfolio managers today.

Still, the bond market shift cannot be dismissed. To borrow a famous line from TV cop show Hill Street

Blues, “Let’s be careful out there” is certainly the mantra for investors at the moment.