Signs are afoot that some of the world’s major economies may be in or close to recession — technically defined as two consecutive quarters of negative growth. Japan and the euro zone’s growth contracted in the second quarter, while the UK economy came to a standstill in the same period.

However, the United States is enjoying better growth than others, a factor which had triggered the dollar’s rally earlier in August. Its Q2 growth is expected to be upgraded this week to 2.6 percent from 1.9 percent in the previous estimate.

Given that, investors have moved on to debate over when the U.S. Federal Reserve would remove policy accommodation it has put in place since the credit crisis first broke.

Tuesday’s release of the minutes from the Fed’s Aug. 5 meeting should give investors crucial pointers.

“The quid pro quo for slashing rates to avert a negative feedback loop between the financial sector and the real economy is an earlier than usual removal of the accommodation,” said Ken Wattret, economist at BNP Paribas.

“If the current Fed is serious about avoiding an erosion of long-term inflation expectations it would be well advised to avoid the mistakes of 2004 onwards when policy stayed way too accommodative for way too long.”

VALUATIONS AND PERFORMANCE

Valuation suggests that stocks have been relatively attractive for some weeks now.

According to Thomson Reuters data, the S&P 500 index is trading at 12.9 times forward earnings, after falling to as low as 11.63 in mid-July — a level not seen since the fourth quarter of 1988 and below the long-term average of around 18.35 since 1968.

However, asset managers might be too traumatized to jump into an asset class which has fared badly.

“There has been a remarkable deterioration in the appetite for equities among institutional investors over the past two months,” State Street said in a note to clients.

The financial services firm said the picture is clear in Japan, where monthly institutional flows into Japanese equities sank to a record low after being robust in the past few years.

For hedge funds, funds mixing various strategies such as long short or relative value fared the worst so far this year.

The broader Lehman Brothers/HFN hedge fund composite index — which tracks performance of nearly 2,400 hedge funds — fell more than 2.6 percent in July, bringing the year-to-date loss to 4.26 percent.

July returns are slightly above the trailing 12-performance of -2.89 percent but still the weakest in the index’s database going back to 2000.

The last episode of such hedge fund declines occurred following the August 1998 Russian default/LTCM debacle, when the Hedge Fund Review’s composite hedge fund index lost 6.41 percent in the 12 months leading up to that September.

As of end-July, the index shows that funds with multi-style strategy suffering the worst loss of over 9 percent while macro/directional funds with trend-following strategy performing the best with a gain of 10.26 percent.

“Despite their tough performance over the past year, early 21st century investment doctrine has and will continue to favour the migration of assets from traditionally long-only styles to the absolute total return approach,” Lehman said in a note.

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