Predicting recession probabilities in most markets declined
Predicting recession probabilities have fallen sharply from the highs of 2022, the JPMorgan Chase & Co (NYSE:JPM) model shows.
In seven of the nine asset classes tracked by the model, from European stocks to investment-grade bonds, current quotes suggest recession chances are below 50%. The value of the S&P 500 suggests traders see a 73 percent chance of an economic downturn in the U.S., up from 98 percent last October, Bloomberg wrote, citing data from the bank.
Do economists predict a recession?
“Most asset classes are showing a gradual reduction in recession risks Thanks to the opening of the Chinese economy, the collapse in gas prices in Europe, and a more pronounced than expected slowdown in U.S. inflation,” said JPMorgan strategist Nikolaos Panikirtzoglu. — The market now sees a much lower likelihood of a recession than in October.”
Meanwhile, his colleague Marko Kolanovic warned that investors may be underestimating the potential pressure that a slowdown in U.S. economic growth could put on stocks in the coming months. At the same time, factors such as a decline in industrial production and retail sales, as well as a rally in the bond market and the Federal Reserve’s promise to keep rates high will play into the bulls’ hands.
Economists, on the contrary, have become more pessimistic-their consensus forecast calls for a 65% chance of a recession versus a 50% chance in October, Bloomberg notes.
Negative signals are also observed in the bond market — the yield on three-month US government bonds exceeds the yield on 10-year securities, indicating that investors are waiting for a slowdown in economic growth in the coming months.
On the other hand, many market participants are hopeful that the world’s central banks will be able to give the economy a soft landing — and it’s precisely because of such hopes that risky assets have rallied in recent weeks.
“I don’t want to say growth will be outstanding, I just think it won’t be a nightmare,” HSBC strategist Max Kettner told Bloomberg. — There are simply no catalysts to a decline and no unpleasant surprises, so the only way is up.”
Earlier we reported that the U.S. Treasury is going to use emergency measures because the national debt is getting closer to the ceiling.
Details of a potential U.S. government debt deal are emerging
Negotiations between the White House and the Republican Party, which holds a majority in both houses of the U.S. Congress, are progressing towards an agreement on the national debt ceiling and federal government spending limitations for two years.
In recent days, the two sides have narrowed their differences in talks, but the agreed-upon details are still tentative, and a final decision has not been reached yet, according to Bloomberg. One key outstanding issue is the amount of spending limits, on which the White House and Republicans have not yet reached an agreement. The Biden administration has advocated for a 3% increase in defense spending in 2024.
Republicans have secured an agreement to expedite permits for pipelines and other fossil energy projects. The agreement also includes provisions to modernize the U.S. electric grid by incorporating renewable energy sources, as reported by Bloomberg. Additionally, Republicans have agreed to reduce the proposed budget increase for the U.S. Internal Revenue Service by $10 billion, lowering it from the original $80 billion.
Initially, Republicans suggested raising the national debt ceiling until March 2024 in exchange for 10 years of spending limits. However, they are now discussing a two-year period for spending cuts. While there are still differences to be resolved, both parties are aware of their areas of disagreement, and work will continue until a final agreement is reached, according to House Speaker Kevin McCarthy.
Reports of progress in the negotiations have led to a slight rise in U.S. Treasury yields. Stock markets in Japan and South Korea experienced mostly positive movement, while the main indexes in Australia remained relatively stable. Goldman Sachs analysts Jan Hatzius and Alec Phillips noted that the likelihood of reaching a deal is now at its highest point ever in the negotiations. If a deal is reached promptly, a vote in the House of Representatives is expected to take place on Tuesday, May 30, allowing the document to reach the president before the June 1 deadline set by the U.S. Treasury Department.
Earlier we reported that the head of Rockefeller International criticizes China’s economic recovery as a farce.
The Head of Rockefeller International criticizes China’s economic recovery as a farce
Ruchir Sharma, the Head of Rockefeller International, argues that China’s economic recovery is merely a facade due to weak growth heavily reliant on government stimulus and debt. He believes that such a model has always been unsustainable and is currently exhausted.
While Wall Street speculates that China’s GDP will grow by 5% and corporate earnings will increase by 8%, the reality is that corporate earnings in the first quarter only grew by 1.5%.
Corporate earnings are lagging behind GDP in 20 out of the country’s 28 sectors, and the MSCI China Stock Index has declined by 15% since its peak in January.
Imports, which reflect consumer demand, also experienced an 8% decline in April, and credit growth was half of what was predicted. The labor market in China is also facing challenges, with youth unemployment reaching 20% and continuing to rise.
Since 2008, China’s economic model has relied on government stimulus and increasing debt, particularly in the real estate sector, which accounts for one-third of disposable income and 3% of GDP compared to 10% in the US. However, China’s growth potential is only half of the targeted 5% due to a shrinking population.
Earlier we reported that the U.S. called China’s ban on Micron Technology products “baseless”.
The U.S. called China’s ban on Micron Technology products “baseless”
The U.S. has criticized China’s ban on Micron Technology’s products as “baseless,” according to a report by Reuters. There is concern among investors that similar measures could be implemented against other major U.S. technology companies such as Tesla and NVIDIA.
Micron Technology, the microelectronics company, strongly opposes these restrictions, stating in a released statement that they have no basis in reality.
China’s state cyberspace office has issued a ban on national critical information infrastructure operators from purchasing products from Micron Technology, citing concerns that the company’s products have not passed cybersecurity tests and could pose a threat to national security.
U.S. authorities have expressed their intention to collaborate with key allies and partners to address these violations in the Chinese market. However, the specific actions to be taken have not been specified.
Previously, the leaders of the G7 countries issued a joint statement affirming their commitment to combating China’s non-market practices that distort the global economy, including the illegal transfer of technology or data disclosure.
Earlier we reported that the U.S. debt limit negotiations will resume on May 22.
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