WeWork, the loss-making US office rental company, is planning a stock market launch next month to fund its global expansion. All the signs on Wall Street on Wednesday were that Silicon Valley’s next big thing may have left it a tad late.

On a day when global stock markets took a tumble, WeWork will doubtless be hoping that swift and decisive action by the Federal Reserve can hold off a bear market in shares for just a bit longer. Otherwise the company’s float will be remembered for the wrong reason: as the one that marked the top of the cycle.

Donald Trump has his own reasons for wanting the stock market to remain buoyant – the fact that his 2020 US presidential campaign is already under way – but was uncharacteristically slow to respond to the turmoil. Eventually, of course, the president could not resist having another dig at the Federal Reserve as part of his campaign to have interest rates slashed.

And they almost certainly will be. The Fed is highly sensitive to what is happening on Wall Street and a rate cut at its next meeting in September is a nailed-on certainty. Some analysts, Steen Jakobsen at Saxo Bank, for instance, think that the US central bank may not wait that long and instead announce an emergency cut before its scheduled meeting.

Q&A What is an inverted yield curve and why does it matter? Show Hide What is the yield curve? This is the line plotted on a graph that shows the rate of return on government bonds to their date of maturity. Government bonds – known as gilts in the UK, treasuries in the US and bunds in Germany – are debt issued over a fixed period of time, typically three months, two years, 10 years and 30 years, to fund government spending. The yield is the rate of return investors receive. Maturity is when the government repays the debt at the end of the term. When more investors are buying government bonds prices go up, and yields drop. Companies can also issue bonds. What happens when the yield curve inverts? This is when the yield on short-term bonds is higher than on long-term bonds. It means that traders are accepting a lower interest rate to hold longer-dated bonds than the shorter-dated alternative. It’s relatively rare – investors typically get higher returns for lending over the long term, as this is seen as riskier than short-term lending. They also expect to be compensated for the impact of inflation, which will eat into investments over time. What does it mean? An inverted yield curve is a classic signal of a looming recession – in the US, the curve has inverted ahead of every recession over the past 50 years. It falsely signalled a recession just once, at the time of the 1998 Russian financial crisis. For other countries the signal is less clear. Several have experienced long periods of inverted yield curves without a subsequent recession, notably the UK in the 1990s. Why is it happening now? The yield curve for two- to 10-year US government bonds has inverted for the first time since 2007, just before the start of the global financial crisis. This indicates that investors are seriously worried about an economic downturn, which would keep inflation low. They are worried about the impact on the already-weak global economy of the prolonged trade war between the US and China, along with Brexit. Is recession inevitable? No, but it is highly likely. And an inverted yield curve driven by recession fears risks becoming a self-fulfilling prophecy, knocking confidence and causing businesses to cut back on investment. How soon does recession tend to follow yield curve inversion? Previous downturns show that yields have typically inverted 18 months, on average, before a recession began. Julia Kollewe





That still seems a bit of a long shot but the accumulation of bad economic news means that the battle between the Fed and the White House has been won decisively by Trump. All that remains is to see how much face the Fed’s chairman, Jerome Powell, can save.

Powell’s position was uncomfortable but defensible all the time the financial markets thought the longest sustained period of growth in US history would continue. Now, though, the bond markets have signalled that they think Trump has got it right and the Fed has got it wrong.

The catalyst for the latest share sell-off was the news that the yield (broadly speaking, the interest rate) on a 10-year US Treasury bond was lower than that on a two-year bond.

This is unusual because for the most part investors demand a higher yield on 10-year bonds because there is more uncertainty over what could happen in the next decade than in the next two; higher risk equals a higher return.

But occasionally, the yields on 10- and two-year bonds converge. Even more rarely, yields on 10-year bonds fall below those on two-year bonds. That’s when investors are more concerned about short-term growth prospects than about inflation risks in the longer term and, historically, it is often the moment the recession warning light turns red.

That’s not always the case. Sometimes the economy sails on regardless. But share prices have been defying gravity for months and it would be a brave investor who would shrug off the inverted yield curve as a false signal this time.

Why accountants are batting back Sports Direct

It says something about a company when none of Britain’s big four accountancy firms is willing to take on the job of doing its books. When the boss of Sports Direct, Mike Ashley, asked PwC, KPMG, EY and Deloitte whether they wanted his business, they all said no.

As things stand, the business secretary, Andrea Leadsom, may have to appoint one of the big four to do the Sports Direct accounts. This sort of humiliation is unprecedented for a big UK company.

But this affair also speaks volumes about the current state of the accountancy business, which has been tarnished by failures to spot problems developing in a number of high-profile collapses: Carillion, BHS and Patisserie Valerie to name but three.

The big four (and Sports Direct’s current auditors, Grant Thornton) have enough problems already without Ashley’s unconventional business adding to them. What’s more, a recession is likely to expose further accountancy failings because, as Warren Buffett said, it’s only when the tide goes out that it is possible to see who’s swimming naked.