Recession 2023? (Weekly Market Report)
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Despite central banks’ austerity measures to avert a lengthy rising
inflation period, stock market indices have recently finished three
weeks in the negative.
Is this a hint that investors are becoming more conscious of
macroeconomic issues? I feel this could be a setup for RED October.
Historically markets have dropped in October, but this drop could be
HUGE.
Next week, the succession of indicators expected in the United States
will allow us to measure the pulse of the world’s largest economy
and evaluate the Fed’s leeway.
Following a week of tumultuous trading, US markets did gain on Friday
morning. However, most of the attention is still focused on
interest-rate announcements and how central banks worldwide intend to
deal with historical inflation.
FEDERAL RESERVE NOTES
Because Fed policymakers do not want inflation to become as entrenched
as it was in the 1970s, many observers anticipate the central bank to
raise interest rates for the third time in a row later this month.
This week, Jason Furman had an intriguing view on inflation. Under
Obama, he was head of the White House Council of Economic Advisers,
although he is far from a Biden supporter.
ACCORDING TO HIM, THE FED WILL NEED TO MAINTAIN A 6.5 PERCENT
UNEMPLOYMENT RATE FOR TWO YEARS IN ORDER TO RETURN INFLATION TO 2%. In
other words, the companies will have to lay off more employees, which
will almost certainly result in a recession.
The typical disclaimer to the “unemployment rate” remains: it is
poorly computed, does not reflect real unemployment, and does not
account for individuals who are underemployed or working below their
capacity.
Loretta Mester, Chairwoman of the Cleveland Federal Reserve Bank,
stated this week that SHE IS NOT SURE THAT INFLATION HAS PEAKED,
adding that the Fed’s mission remains to create a gentle landing.
Furthermore, we continue to observe weakening economic statistics.
The Fed notes in its new Beige Book that consumer spending is moving
away from DISCRETIONARY GOODS AND TOWARD NECESSITIES. Auto sales have
plummeted and have been below peak levels since July, while industrial
activity has also decreased.
RESIDENTIAL REAL ESTATE LOAN DEMAND HAS FALLEN IN TANDEM WITH BUSINESS
REAL ESTATE LOAN DEMAND. The economy’s outlook was “generally
negative,” with forecasts for falling demand to persist over the
“next six to twelve months,” according to the Beige Book.
TO SUMMARIZE, FED POLICYMAKERS HAVE DOWNPLAYED RECESSION FEARS AFTER
TWO CONSECUTIVE QUARTERS OF NEGATIVE ECONOMIC GROWTH AND NOW FORECAST
WORSENING ECONOMIC CONDITIONS UNTIL THE MIDDLE OF 2023.
By rejecting the recession, the Fed further erodes what little
credibility it has left, mainly because they will almost certainly be
compelled to switch direction on recession rhetoric next year.
BLACKROCK: RECESSION 2023
IN A LETTER TO CLIENTS THIS WEEK, BLACKROCK ($8 TRILLION IN ASSETS
UNDER MANAGEMENT) PREDICTED A “SIGNIFICANT DECREASE” IN US GDP BY
MID-2023, indicating the onset of a recession by early next year at
the latest. They join a wave of other investing, business, and
financial firms in predicting a recession. Officially or technically,
it has arrived or will arrive shortly.
BANK STOCK OPPORTUNITY
Banks appear to be outperforming in the face of rising interest rates.
European banks, in particular, saw their shares climb after last week
as investors banked on increased earnings.
THE BANK OF ENGLAND
Regarding interest rate movements, the Bank of England postponed its
September policy meeting until September 22 due to the death of Queen
Elizabeth II. The BOE’s latest interest rate rise was its largest
since 1995, as the country’s inflation rate surpassed 10% in July.
KEY EVENTS, MARKET MOVERS & CALENDAR
* Tuesday, September 13 – CPI (MoM) (August)
* Thursday, September 15 – Retail Sales (MoM) (August)
* Fed Talk
The next volatility pool for speculating on the evolution of US key
rates is slated for Tuesday, with the August US inflation data
release. Investors will also pay attention to US retail sales
(Thursday) and the University of Michigan confidence index (Friday) to
determine if the US consumer is still willing to spend.
The Beige Book report will be issued, and Jerome Powell will make a
noteworthy conference presentation for Federal Reserve watchers. The
OPEC+ summit will occur amidst increased debate about output cutbacks,
with several producing nations anticipating near-term oil surpluses.
The Fed’s next meeting is slated for the following week, on
September 21, with the now-standard quandary: a 50 or 75-point
increase?
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