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Hard to get "inflation down" without causing a recession, Harvard economist warns

Harvard University economics professor Kenneth Rogoff told FOX Business that once the Fed raises interest rates, it may be difficult to ‘control’ the economy......»»

Category: topSource: foxnewsMay 13th, 2022

Hard to get "inflation down" without causing a recession, Harvard economist warns

Harvard University economics professor Kenneth Rogoff told FOX Business that once the Fed raises interest rates, it may be difficult to ‘control’ the economy......»»

Category: topSource: foxnewsMay 13th, 2022

With World Gripped By Fertilizer Crisis, Biden Admin Clings To "Climate-Inspired Utopian Food-Production Fantasies"

With World Gripped By Fertilizer Crisis, Biden Admin Clings To "Climate-Inspired Utopian Food-Production Fantasies" Authored by Nathan Worcester via The Epoch Times, Samantha Power: ‘Never let a crisis go to waste.’ Do the World Economic Forum and China agree? “Fertilizer shortages are real now.” Uttered by USAID’s Samantha Power in a May 1 ABC interview with former Democratic advisor George Stephanopoulos, the words briefly drowned out the din of the news cycle. They were not unexpected to some. Power, who served as U.N. ambassador under Obama, mentioned fertilizer shortages after weeks of hints from the Biden administration. White House Press Secretary Jen Psaki repeatedly alluded to challenges obtaining fertilizer in recent press briefings. So did President Joe Biden himself in a joint statement with EU President Ursula von der Leyen. “We are deeply concerned by how Putin’s war in Ukraine has caused major disruptions to international food and agriculture supply chains, and the threat it poses to global food security. We recognize that many countries around the world have relied on imported food staples and fertilizer inputs from Ukraine and Russia, with Putin’s aggression disrupting that trade,” the leaders stated. In an April report titled, “The Ukraine Conflict and Other Factors Contributing to High Commodity Prices and Food Insecurity,” the USDA’s Foreign Agriculture Service acknowledged that “for agricultural producers around the world, high fertilizer and fuel prices are a major concern.” While political rhetoric has often focused on Russia, the rise in fertilizer prices did not begin with its invasion of Ukraine. An analysis from the Peterson Institute of International Economics shows that fertilizer prices have rapidly climbed since mid-2021, spiking first in late 2021 and again around the time of the invasion. Industry observers have pointed out that commodity prices are not solely affected by Vladimir Putin. Max Gagliardi, an Oklahoma City oil and gas industry commentator who cofounded the energy marketing firm Ancova Energy, told The Epoch Times that the war and sanctions have helped drive the upward climb of natural gas prices in Europe. A worker walks at the Yara ammonia plant in Porsgrunn, Norway, on Aug. 9, 2017. (Lefteris Karagiannopoulos/Reuters) Natural gas is used in the Haber-Bosch process, which generates the ammonia in nitrogen fertilizers. Those fertilizers feed half the planet. Gagliardi thinks the picture is more complicated at home, where environmental, social, and corporate governance (ESG) has become a controversial tool of stakeholder capitalism, often used to force divestment from fossil fuels or other industries disfavored by the left. “It’s a combination of record demand domestically and from LNG [liquid natural gas] exports combined with less than expected supply, in part due to the starving of capital for the O&G industry due to the ESG/green movement pressures on capital providers, plus pressure from Wall Street to spend less capital and return value to shareholders,” he said. Language from Power Echoes Green Activists, EU, WEF In the case of increasing costs for oil, natural gas, and coal, some politicians and green activists have argued that those fast-rising prices mark an opportunity to accelerate a move from hydrocarbons to wind, solar, and electrification. “Big Oil is price gouging American drivers. These liars do nothing to make the United States energy independent or stabilize gas prices. It’s time we break up with Big Oil and ignite a clean energy revolution,” Sen. Ed Markey (D-Mass.) said on Twitter in March. “I say we take this opportunity to double down on our renewable energy investments and wean ourselves off of planet-destroying fossil fuels[.] Never let a crisis go to waste,” said former Joe Biden delegate and political commentator Lindy Li in a Twitter post about ExxonMobil’s exit from Russia’s Far East. Meanwhile, Mandy Gunasekara, an environmental lawyer who served as the Environmental Protection Agency’s chief of staff under President Trump, said in an interview with The Epoch Times, “It’s always been part of their plan to make the price of traditional energy sources go up, so then wind and solar could actually compete with them.” Describing how fertilizer shortages could actually help advance a particular agenda, Power sounded much like Li. She even used an identical phrase: “Never let a crisis go to waste.” Intentionally or not, this echoed a line from another high-profile Obama alum, Rahm Emanuel: “Never let a serious crisis go to waste.” Emanuel was talking about the 2008-2009 financial meltdown. “Less fertilizer is coming out of Russia. As a result, we’re working with countries to think about natural solutions, like manure and compost. And this may hasten transitions that would have been in the interest of farmers to make anyway. So, never let a crisis go to waste,” Power told Stephanopoulos. Power’s language of setting crisis as opportunity parallels similar statements from environmental groups. Writing to EU President von der Leyen and other EU bureaucrats, a group of European and international environmental organizations urged the union to stay the course on environmental policy. “The crisis in Ukraine is yet another reminder of how essential it is to implement the Green Deal and its Farm to Fork and Biodiversity Strategies,” the letter states. The Farm to Fork Strategy confidently asserts that its actions to curb the overuse of chemical fertilizers “will reduce the use of [fertilizers] by at least 20 percent by 2030.” “Ploughing more farmland, as is currently being put forward, to grow crops for biofuels and intensive animal farming by using even more synthetic pesticides and [fertilizers] would be absurd and dangerously increase ecosystem collapses, the most severe threat to social-ecological stability and food security,” the activists’ letter argues. “The European Union must tackle the current challenges by accelerating the implementation of its strategies to reduce the use of synthetic pesticides and [fertilizers], to preserve its natural environment and the health of its citizens.” Numerous publications from the World Economic Forum (WEF), known for its role in orchestrating the global response to COVID-19, have made similar arguments. A 2020 white paper from WEF and the consulting firm McKinsey and Company warns of greenhouse gas emissions and potential runoff from fertilizers, advocating for an end to fertilizer subsidies in developing countries and praising China for its efforts to reduce fertilizer use. A 2018 WEF white paper, co-authored with the consulting firm Accenture, claims that “a 21st century approach to organic farming” should strive to close the gap in yields between organic and conventional farming. WEF’s vision of 21st century agriculture comes into greater focus in another 2018 report titled, “Bio-Innovation in the Food System.” It advocates for the bioengineering of new microbes to fix nitrogen more efficiently in plants. “This offers the prospect of lowering and more optimally applying nitrogen fertilizer,” WEF’s report states. WEF has also pushed the use of “biosolids”—in other words sewage sludge—as fertilizer. Urine, it notes, “makes an excellent agricultural fertilizer.” Gunasekara, formerly of the EPA, said that fertilizer overuse and runoff presents serious risks, giving rise to toxic algal blooms in the Great Lakes and the Gulf of Mexico. However, “generally speaking, the farmers are very, very efficient with their fertilizer use. They have a built-in incentive not to waste something that is a high input cost,” she told The Epoch Times, adding that in her experience, industry and communities could work out positive solutions with regulators. Heavy-handed restrictions, she argued, are not the solution. The UK Absolute Zero report, produced by academics at top British universities, goes even further than some other reports in its opposition to nitrogen-based fertilizers and conventional agriculture more generally. This photo shows sheep feeding on lush grass on the property of Australian farmer Kevin Tongue near the rural city of Tamworth in New South Wales, Australia, on May 4, 2020. (Peter Parks/AFP via Getty Images) It anticipates a phaseout of beef and lamb production, with “fertilizer use greatly reduced,” in order to meet net-zero emissions targets by 2050. “There are substantial opportunities to reduce energy use by reducing demand for [fertilizers],” the report states. It also envisions cuts to energy in the food sector of 60 percent before 2050. That imagined energy austerity, with its many unforeseeable consequences for human life, apparently will not last forever. The report claims that after 2050, energy for fertilizer and other aspects of food production will “[increase] with zero-emissions electricity.” “A food crisis/famine advances the long-term goal of more centralized control of energy, food, transportation, etc., as advanced by the Davos crowd of the WEF. Governments must expand their powers to ‘handle’ crises, and that is what progressives love more than anything,” Marc Morano, proprietor of the website Climate Depot, told The Epoch Times. Sri Lanka’s Organic Experiment a Stark Warning Though Power’s remarks were consistent with talking points from Democrats, WEF, the EU, and similar factions, they came at a particularly inconvenient moment for advocates of organic fertilizer—Sri Lanka’s recent experiment with abandoning chemical fertilizer has plunged the island nation into chaos that shows no signs of letting up. According to a 2021 report from the USDA Foreign Agriculture service,  Sri Lankan agricultural economists warned that a rapid shift from chemical to organic fertilizers “will result in significant drops in crop yields.” The country has since had to compensate one million of its farmers to the tune of $200 million, as reported by Al Jazeera. With food shortages now a reality, anti-government protests prompted Sri Lankan President Gotabaya Rajapaksa to declare a state of emergency on May 6—the second in two months. “[Sri Lanka is] now literally on the verge of famine, because they’ve had massive crop failures,” Gunasekara said. A farmer prepares a paddy field for sowing in Biyagama on the outskirts of Colombo on October 21, 2020. (Ishara S. Kodikara/AFP via Getty Images) “This administration wants to use this as an opportunity to push their Green New Deal-style farming tactics, which we’ve seen implemented elsewhere, that cause significant problems beyond what we’re currently facing from our farmers’ perspective and what consumers are going to be facing,” she added. “Manure cannot compete with modern chemical agriculture for high yield farming that the world depends on,” Morano of Climate Depot said. Rufus Chaney, a retired USDA scientist known for his research on sewage sludge-based fertilizers, echoed Morano’s skepticism about making up for missing chemical fertilizers with organic alternatives. “There are not enough useful (and not already being used) organic fertilizers to change the balance of any chemical fertilizer shortages,” Rufus told The Epoch Times via email. “Nearly all organic fertilizers are built on livestock manure and can only be shipped short distances before it becomes cost-prohibitive,” he added. These realities underscore another apparent contradiction in green policy—even as climate activists push for cuts to chemical fertilizer use and greater reliance on organic alternatives, they are working assiduously to cull the livestock populations that provide manure for those fertilizers. In Northern Ireland, for example, a newly passed climate Act will require the region to lose a million sheep and cattle. The EU’s Farm to Fork Strategy even states that work on fertilizers will be focused “in hotspot areas of intensive livestock farming and of recycling of organic waste into renewable fertilizers.” “For years we were warned that ‘climate change’ would cause food shortages, but now it appears that climate policy will be one of the biggest factors in causing food shortages,” Morano told The Epoch Times. Bails of hay sit in a paddock containing a failed wheat crop on farmer Trevor Knapman’s property in Gunnedah, NSW, Australia, on Oct. 4, 2019. (David Gray/Getty Images) He cited research suggesting that a move to organic farming in the United Kingdom could actually raise carbon dioxide emissions, as the decrease in domestic yields can be expected to boost carbon-intensive imports. “What the Biden admin is doing is seizing on ‘crises’ to advance their agenda. Greta [Thunberg] famously said, ‘I want you to panic.’ Because when you panic, you don’t think rationally and calmly, and you make poor choices. The only way they can sell these climate-inspired utopian energy and food production fantasies is during times of COVID crisis or wartime crisis,” he added. China’s Role Scrutinized Still, others see the focus on Russia as a distraction from China’s maneuvering on the world stage. In 2021, China limited exports of both phosphate and urea fertilizers. The country has also stepped up its fertilizer imports. China’s export restrictions came after it rapidly emerged as “the most important and most influential country in the fertilizer business,” according to an outlook document from the Gulf Chemicals & Petrochemicals Association. The Peterson Institute’s analysis shows that as global fertilizer prices shot upward in 2021 and 2022, China’s fertilizer prices mostly leveled off. Although the USDA’s April report did note the impact of China’s fertilizer export restrictions and heavy fertilizer imports, its executive summary drew greater attention to the Russia-Ukraine conflict. That summary did not mention China by name among the “countries imposing export bans and restrictions.” Stanford University’s Gordon Chang, a China expert, warned on Twitter on May 6 that China has been “buying chemical companies whose products are needed for fertilizer and, more generally, food production,” citing comments from onshoring advocate Jonathan Bass. The Epoch Times has reached out to Chang and Bass for additional details. We must, as a national priority, protect our farmland, ranches, processing facilities, distribution channels, and all the other elements that support agriculture and the food chain. #China’s regime is seeking control. Its intentions are undoubtedly malign. #CCP — Gordon G. Chang (@GordonGChang) May 7, 2022 China has also been buying up American farmland as well as ports around the world, including ports in the now-food insecure Sri Lanka. Physicist Michael Sekora, a former project director in the Defense Intelligence Agency (DIA), told The Epoch Times that worldwide fertilizer shortages could reflect China’s long-range technology strategy. A key element of that strategy, he argued, is undercutting the United States whenever and wherever possible. “Our ability to produce food is very much under attack right now. Some people say, ‘Oh, it’s just a coincidence.’ It’s China,” Sekora said. “China has been very strategic in making sure they shore up what they have and restricting access throughout the rest of the world,” Gunasekara said. “When you have people come in that are very anti-development and anti-growth, China can put its finger on the global market, making it that much harder, and then try to use that as an example to exert more authority and have access to greater power.” Pain Felt Around the World “It’s been hectic,” said South African tobacco farmer Herman J. Roos. Roos told The Epoch Times that fertilizer prices near him have jumped since the invasion of Ukraine, on the heels of steep increases over the previous year. He was able to buy all the fertilizer he needs for this year before the latest price shock. Yet, he expects shortages of urea, monoammonium phosphate (MAP), and other fertilizers to strain a population of farmers already under significant stress. Copper theft, lack of government support, and the ever-present threat of physical violence are all pushing Roos and producers like him to the brink. Yet, for all the challenges in South Africa, Roos anticipates the fallout will be worse elsewhere in the continent. “The economy will be hit harder in countries like Mozambique, Zambia, and Zimbabwe—countries where your agricultural system is more focused on subsistence farming,” Roos added. They and other sub-Saharan African countries are heavily dependent on South Africa for their food supply. Roos prays food riots won’t come to South Africa. The country is still recovering from a wave of riots in summer 2021, prompted by the arrest of former South African President Jacob Zuma. He does predict that some farmers in the country will go bankrupt. Let the master gardeners foot the bill and do all the work, then show up to get in on the harvest. (StockMediaSeller/Shutterstock) Back in the United States, Connecticut landscaper Adam Geriak does not yet face such stark choices. He told The Epoch Times that fertilizer prices near him are up, in line with estimates a Connecticut garden store provided to The Epoch Times. “I do primary garden work and use organic fertilizers, which primarily come from poultry manure,” Geriak said, adding that the price of poultry manure fertilizer may have risen too. He does not think fertilizer price increases will have much of an effect on him. Yet, other facets of the current economic picture are worrisome to him as tries to manage his small business most effectively. “I’m having a hard time planning for the future because of the uncertainty, and I think other owners are feeling this too. In the previous two years, clients seemed to have open coffers. They wanted more projects done and there seemed to be a lot of money going around. Clients seem to be a bit tighter now, asking how they can save money on certain projects and such,” Geriak said. “Being on the verge of a recession, and retirement accounts down may be leading to these issues,” he added. The USDA report on Sri Lanka’s organic experiment states that the country’s government made impossible promises to different parties. It informed farmers it would handle the cost of moving away from chemical fertilizers while telling consumers that rice on their shelves would not become pricier, all while attempting to realize environmental and public health benefits through a breakneck transition to organic fertilizers. “If you put too much emphasis on environmental issues, and you ignore the very real impact that can have to people’s daily lives, it can have dire consequences,” Gunasekara told The Epoch Times. “Unfortunately, we’re seeing it in the most dire of circumstances, which is a suppressed food supply. I think that situation is only going to get worse because of the rise in prices for fertilizers and diesel and everything else that’s going to make it harder for farmers in the U.S. to produce, then also globally.” Josh, a farmer in Texas who raises small livestock, also believes things will get worse before they get better. He did not want to share his last name. “I personally think that we haven’t even begun to feel the effects of inflation in our grocery store bills, because last year, the costs to produce were 1/3 to 1/2 the cost farmers and ranchers are having to pay this year. That cost has to be absorbed by the buyer to make it feasible for them to even continue,” he said in a message to The Epoch Times. “My family is preparing now and stocking up our freezers and pantry because we are really concerned how bad it can get this next year.” He estimates that fertilizer prices near him have increased 200 or even 300 percent, “dependent on what program you are running.” The rise in diesel prices has hurt him the most. “Farm equipment runs on diesel,” he pointed out. According to AAA’s gas price website, diesel in Texas is running at an average of $5.231, up from $2.820 a year ago. “I can’t imagine how anyone would profit or sustain raising crops or cattle with all these price increases that effect your overhead,” Josh said, saying he has heard about other ranchers and farmers culling their herds to avoid losses. “Food shortages are a great way to collapse the current system and install a Great Reset,” Morano, of Climate Depot, told The Epoch Times. Tyler Durden Mon, 05/09/2022 - 20:30.....»»

Category: blogSource: zerohedgeMay 9th, 2022

As Expected, Fed Hits Brakes with 50-point Hike

With little surprise, the Federal Reserve announced a larger rate hike Wednesday following their two-day meeting this week, accelerating the central bank’s efforts to curb rampant inflation and pull back from pandemic relief efforts. The 50-basis point increase is the largest single jump in over two decades, and was telegraphed by Fed chair Jerome Powell… The post As Expected, Fed Hits Brakes with 50-point Hike appeared first on RISMedia. With little surprise, the Federal Reserve announced a larger rate hike Wednesday following their two-day meeting this week, accelerating the central bank’s efforts to curb rampant inflation and pull back from pandemic relief efforts. The 50-basis point increase is the largest single jump in over two decades, and was telegraphed by Fed chair Jerome Powell over the last couple months as the war in Ukraine and persistent worldwide inflationary pressures increased the urgency for the central bank to do something.  “With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2% objective and the labor market to remain strong,” the Fed wrote in a release following the meeting. In support of these goals, the Committee decided to raise the target range for the federal funds rate…and anticipates that ongoing increases in the target range will be appropriate.” With a direct relationship between the federal fund rate and mortgage rates, along with essentially every other financial sector, the decision to accelerate raising those interest rates will certainly affect the national housing market—though the timing and intensity of that effect is hard to predict.   “This vote alone is unlikely to spark a new surge in mortgage rates,” said Danielle Hale, chief economist for Realtor.com in a statement. “Mortgage rates have already anticipated a fair amount of Fed tightening, but the market continues to ratchet up expectations for big Fed hikes throughout the rest of the year, already expecting a 75 basis point hike at June’s meeting.” After many economists predicted a slower raising of rates—mostly anticipating 25-basis point hikes spread out across 2022—the war in Ukraine and higher than expected inflation appears to have accelerated policymakers’ attempts to cool off the economy. The Fed has also indicated it will reduce its holdings in securities, including mortgage-backed securities (MBS) beginning on June 1, shedding $47.5 billion for the first three months before accelerating to $95 billion per month. “The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments,” the Fed added in its statement. Mike Fratantoni, chief economist for the Mortgage Banker Association (MBA), said in a statement that a lack of clarity on the specific endgame of the balance sheet plan could cause issues in the MBS markets. “Importantly, neither the statement nor the balance sheet plan repeated the goal of returning the balance sheet to all Treasuries, and there was no mention about the potential for active MBS sales. Musing about active sales has likely increased volatility in the MBS market recently, as investors do not know how to interpret the vague signals that had been given,” he said. Hale said how markets and the mortgage industry specifically respond will be based both on these potentially evolving plans as well as expectations from market participants. “There’s both upside and downside risk for mortgage rates. If the Fed continues to focus on inflation, and the rate increases and balance sheet reduction it believes are needed to tame price growth, that will reinforce the current market view, and keep mortgage rates climbing,” she said. “At the same time, it means that expectations are very high, and if the Fed shows any hint of hesitancy in its resolve to reign in inflation, markets could expect a slower path of increases which would give rates a bit of breathing room.” National Association of REALTORS® (NAR) chief economist Lawrence Yun said at a recent legislative meeting that real estate professionals have already been hit with some “curveballs” in 2022, and predicted inflation and rising mortgage rates would continue to be an issue. “Mortgages now compared to just a few months ago are costing more money for home buyers,” he said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.” Fratantoni predicted that mortgage rates would likely peak at or near current rates. “Once we are past this rate spike and associated volatility, MBA expects that potential homebuyers may be more willing to re-enter the market. Given how much higher rates will remain above the past two years, we do not expect refinance demand to increase any time soon,” he said. Another thing that will almost certainly affect markets, according to Hale, is Powell’s more qualitative actions—how he evaluates the economy and speaks about inflation in various testimonies and public appearances. In a press conference following the May meeting, Powell struck a cautious tone, saying that he expected to be able to cool labor demand and inflation but that solving these big problems would be “extremely challenging.” “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take,” Powell said. “It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.” The Fed is not currently “actively considering” a 75-basis point increase, Powell said, but that “if higher rates are required, we won’t hesitate to deliver them.” A so-called “wage-price” spiral is not something that Powell said he sees right now, but it’s a risk that the Fed “can’t allow to happen.” Reaching a “soft landing”—slowing down a hot economy without falling into recession—is achievable, Powell said—though he added the Fed wouldn’t hesitate to implement “restrictive” policy if that were the only way to achieve goals. He would not say when asked directly whether the Fed could curb inflation and maintain a positive labor market without solutions to supply chain issues, only that it was “a very difficult situation.” “I do expect that this will be very challenging…and it may well depend on events that are not under our control. Our job is to use our tools to try to achieve that outcome, and that’s what we’re going to do,” Powell said. Markets reacted positively to the Fed’s decisions and Powell’s comments, with all three major indices rising following the meeting. The Nasdaq closed up 3.41% on the day, the S&P jumped 2.99% and the Dow gained 2.81% on the day. The Fed’s next meeting is scheduled for June 14 and 15. Jesse Williams is RISMedia’s associate online editor. Email him your real estate news to jwilliams@rismedia.com.     Editor’s note: this story was updated to reflect stock gains after market close. The post As Expected, Fed Hits Brakes with 50-point Hike appeared first on RISMedia......»»

Category: realestateSource: rismediaMay 4th, 2022

Previewing The Fed"s Decision To Kick Off A Record Tightening Cycle Right Into A Recession

Previewing The Fed's Decision To Kick Off A Record Tightening Cycle Right Into A Recession At the conclusion of tomorrow's FOMC meeting, consensus expects the Committee to raise the target range for the federal funds rate by 50bp to 0.75% to 1.0%, the first "double" rate hike since May 2000 (when the Fed definitively burst the dot com bubble)... ... and to announce the start of the reduction of the size of the Fed’s balance sheet, in line with the parameters set out in the March FOMC minutes, somewhere to the tune of $95BN-$100BN per month in bond maturities without active sales (for now). As shown below, while a 50bps rate hike is fully priced in (and in fact, markets are pricing in a modest probability of a 75bps rate hike), rates traders price a roughly 35% chance of a 75bps rate hike in the June meeting. Overall, markets are expecting just over 10 rate hikes by year-end and just under 11 rate hikes through February 2023, at which point the Fed is expected to halt its tightening cycle and start easing. In its FOMC preview, JPMorgan expects the most relevant part of the FOMC statement — the forward guidance on rates — to indicate an expectation that “ongoing increases” in the funds rate will be appropriate; in the post-meeting press conference the bank looks for Powell to convey the need to expeditiously return the funds rate to neutral, and the high likelihood that the funds rate will need to go into restrictive territory. Notably, JPM believes that it is possible we could see a dissent or two for a larger 75bp move, and while the bank thinks there’s an outside chance (perhaps one-in-five) that the hawks persuade their colleagues to support this bigger move, it sees most of the Committee preferring moves in 50bp increments until they finally get the desired tightening in financial conditions. Turning to the fundamentals, JPM notes that it’s pretty clear that this economy doesn’t need stimulative monetary policy. However, less clear are the speed at which this stimulus should be removed, and the reasons for choosing that speed. Whatever the reasons, almost all FOMC policymakers who spoke since the last meeting indicated varying degrees of comfort with hiking by 50bp at next week’s meeting. Notably, Bullard suggested 75bp might be more appropriate (and more “expeditious” than 50bp), though this seemed to receive little buy-in among other Fed officials. According to JPM, "the near-unanimity of this view suggests that perhaps this option has already been tacitly agreed upon, through either a conference call or bilateral calls." Indeed, the Powell Fed has displayed a strong preference to telegraph its intentions ahead of meeting day, and for that reason 50bps is the most likely outcome . But if there is a time to break from habit it’s when the Fed’s inflation credibility is being called into question 0 like right now -  and so don’t fully write off the possibility of a larger rate move. The statement’s forward guidance will be another critical channel by which to influence financial conditions. The Committee is expected to copy the guidance from the last meeting, that it “anticipates that ongoing increases in the target range will be appropriate.” If this phrase is used at meetings at which the FOMC hikes by 25bp (March) and 50bp (May, presumably), then it wouldn’t lock in expectations for a given size of future rate increases, only that more hikes are needed. The risks to this guidance skew very hawkish. However, something like “continue to expeditiously remove accommodation” might imply 50s until the funds rate gets to neutral, which may be too much for the majority of the Committee to stomach. Other changes to the FOMC statement should be fairly modest. Given the contraction in GDP in 1Q, the upbeat phrase about economic activity could be replaced with an upbeat phrase about domestic demand (more particularly about consumer and business spending). Turning to QT, the statement will almost certainly indicate the start of balance sheet reduction (QT), though most of the details of that decision will be relegated to an accompanying "implementation note." Those details will stick closely to the plan spelled out in the March FOMC meeting minutes: monthly runoff caps of $60bn for Treasuries and $35bn for mortgages, and will likely be phased in over a period of three months. As per recent public remarks, actual asset run-off will likely begin at the start of June. Fed officials have indicated that they expect the balance sheet reduction will be a set-it-and-forget-it process, although that's what Yellen said back before the previous QT and we all know how that ended. JPM thinks there is a chance in coming months that the Committee could revisit their decision to subject T-bill runoff to the monthly caps for Treasuries. That said, don’t expect to hear anything further on asset sales in the implementation note. Needless to say, QT matters: as these charts from Crossborder Capital's from Mike Howell show, the S&P 500 reacts in real time to rises and falls in the balance sheet. The Fed has already made some liquidity reductions since the turn of the year, and they coincided more or less exactly with the beginning of the trouble for the stock market: As Bloomberg's John Authers adds, a further factor is QT’s effect on collateral, or on the ability to roll over or refinance investments: it leaves less cash in markets, and make it harder to find collateral when it is needed (this is what triggered the infamous repo crash of Sept 2019 which then led to the even more infamous "NOT QE" QE episode of late 2019. Sharp QT implies a drastic tightening of conditions and the risk of financial accidents. For an analogy, Authers writes, "remember the subprime debacle. That was based on the assumption that adjustable-rate mortgages with low teaser rates could swiftly be refinanced before higher rates bit. It was when borrowers found that they couldn’t refinance, and then started to default, that the crisis set in." It is the the risk of such accidents, which will first and foremost hit the same tech stocks that benefited greatly from the Fed's balance sheet expansion in the past decade... ... that leaves many in the market still deeply skeptical that QT will happen as scheduled. The following comment from Bear Traps Report author Larry McDonald captures this reality best: The beast inside the market has Chair Powell in his sights for the 2nd time since Q 4 2018. Once again it was the Fed whispering into the ear of a journalist over the weekend: “The Fed is set to start shrinking its 9 trillion asset portfolio Their plan rhymes with the 2017-19 version. But this time will be different They’re going sooner and faster all while preparing a speedier pace of rate increases because inflation is high." WSJ Sunday. Hilarious. The Fed went to 50BN a month in September of 2018 and had to stop five minutes later in December this was after promising Wall St economists they were on Auto pilot all the way up to a 2T reduction. Now, they are going to give it a try at 90B a month in May with back to back 50 bp hikes? Who are they kidding? It's the worst start to a year for stocks in decades, consumer savings is down to the bone, GDP prints negative, and the Fed is going to kick off a record tightening cycle? It´s all a show. With conviction we see a near term top in the US dollar and another leg up for hard assets, value vs growth and emerging markets. Humor aside, JPM concludes by noting that while the statement will be agnostic as to the size of future rate moves, Powell can use the press conference to refine this message and will likely indicate that hikes of 50bp or larger are fair game in coming meetings. More generally, both JPM - and the broader market - expects a sternly hawkish tone from the Chair. That said, considering the recent negative GDP print, even a modest trace of dovishness will send risk assets soaring. Speaking of which, JPM is leaning on the dovish side, and the bank's chief economist Mike Feroli thinks the Fed will only deliver two 50bps rate hikes, well below the four 50bps rate hikes currently priced by the market; for those who agree, JPM urges putting on some long risk particularly in the Tech segment: "Our Derivatives team has seen some interest in bullish cash spreads on Nasdaq/QQQs... Separately, our Delta-One team has seen client interest in switching out of SPX/SPY hedges into something that shows more material downside if we have an extended rally that is similar to what we saw on Thursday." To be sure, JPM admits that the above is the “glass is half full” argument. What would prevent this to coming to fruition? Well, according to Andrew Tyler from JPM's flow trading desk, "the reaction to Financials and MegaCap Tech tell us that investors have a base case that the Fed will tightening us into a recession which is exacerbated by commodity-based inflation that will increasingly hurt consumption." Further, these risks are (i) magnified by China’s COVID-Zero policy, which has yet to be fully incorporated into economic forecast and could trigger another wave of earnings downgrades; and, (ii) Russia/Ukraine. The RU/UKR situation seems likely to extend longer than anticipated with the largest risks to the US coming via the Ags complex, driven by both a lack of fertilizer inducing a global redux in crop yield and reduced commodity exports from both countries. As a result, the JPM trader warns that "it may be the case that any rally will be sold until the aforementioned risks are closer to being solved. If so, then remain tactical, remain market-neutral, and consider taking some swings using derivatives if your investment style permits." In conclusion, all we can say is that what the Fed plans to do is one thing. What the market will let it do, is something else, and inflation or no inflation (expect the definition of CPI to be fully revised in a few months to exclude anything that is surging in price) we expect Powell will abort the Fed's tightening process early, just like it did in Q4 2018, with stocks cratering to drive the point home, and forcing the Fed to not only end its tightening but to fast forward to easing and even more QE. Tyler Durden Tue, 05/03/2022 - 15:05.....»»

Category: blogSource: zerohedgeMay 3rd, 2022

The First Bank To Forecast A US Recession Now Warns To "Prepare For A Hard Landing"

The First Bank To Forecast A US Recession Now Warns To "Prepare For A Hard Landing" Two weeks after Deutsche Bank became the first "credible" Wall Street bank to officially make a US recession in late 2023 its base case (here, of course, we exclude such uber bears as BofA's Michael Hartnett or SocGen's Albert Edwards, who have pitched recessionary scenarios explicitly different from the banks' bullish "base cases"), the bank is out with a new, even more bearish view in its latest "House View" note, in which the bank explains that not only is a recession assured but that inflation expectations "will likely move significantly higher, ultimately leading to an even more aggressive tightening and a deeper recession with a larger rise in unemployment" which in turn will mutated into the outcome the Fed has been so desperate to avoid: a hard landing. Here, courtesy of DB's David Folkerts-Landau, the bank's chief economist, is his House View which not only builds upon his bearish economic outlook but leads to a painful conclusion. The storm clouds over the global economy have darkened dramatically. Russia’s invasion of Ukraine has led to fundamental questions about Europe’s dependence on Russian energy and the continent’s geopolitical stability. It has also significantly pushed up commodity prices, exacerbating above-target inflation, and creating a serious risk that longer-term expectations become unanchored. This inflation momentum means central banks need to move aggressively to retain their credibility. Our economists expect the Fed funds rate to peak at 3.6% next summer, but my view is that there are significant upside risks in these forecasts. We are in a new environment, dancing to a new tune, and the incremental mean-reversing way of thinking about inflation and rates is likely to be misleading. Inflation is seeping into expectations, and labor markets are historically tight. It is easily imaginable that inflation dynamics that are highly sticky to the downside will prompt the Fed to raise rates into the 4.5-5% range. Likewise, the ECB is expected to raise rates by 250-300bps between this September and December 2023, taking the deposit rate up into the 2-2.5% range. This aggressive tightening has led us to downgrade our growth forecasts, with a US recession in late 2023 as our baseline. The Fed’s record shows that achieving soft landings whilst reining in inflation with rate hikes this large is next to impossible. Furthermore, the recent 2s10s yield curve inversion parallels those that have preceded the last 10 US recessions, on average by around 18 months. If central banks don't act soon and more aggressively than forecast, inflation expectations will likely move significantly higher, ultimately leading to an even more aggressive tightening and a deeper recession with a larger rise in unemployment. Whilst the temptation may be to let inflation drift at a higher level, we do not think the Fed will risk losing its hard-won credibility. Prepare for a hard landing ahead. This is an interesting point, and clashes with what Mohammed El Erian said a few days ago when the former PIMCO strategist predicted that the Fed will have no choice but to raise its infaltion rate from 2% to 3% as it will not be able to hit the lowest inflation target (as a reminder, as recently as 2 years ago, anyone who suggested that inflation would top 2% was laughed out of any polite gathering of clueless macroeconomic hacks and even more clueless economisseds. That said, here is DB's matrix laying out how a hard landing will spread across the globe: Of course, the cynical bulls will say that this is precisely the best case outcome: a purging crash, which sparks wholesale policymaker panic, and leads to the Fed eventually purchasing not just single name corporate bonds and junk bond ETFs, but also single stocks and ETFs. The German banks then goes on to recap what it views as the three big risks, including i) Russia's invasion of Ukraine; ii) Inflation moves well beyond central bank mandate ranges and iii) Covid-19 shock increasingly transitioned from pandemic to more manageable endemic, but risks remain in key regions. Some more observations here: Key Risk #1: Russia's invasion of Ukraine Russia’s invasion of Ukraine has pushed energy prices significantly higher and disrupted a number of other key commodity markets and supply chains. This is another major supply shock to world activity on the heels of the pandemic shock, causing key commodity prices to surge and real income and spending growth to slow. The war in Ukraine has reached a stalemate on most fronts since mid-March. Our baseline view is that the war morphs into a frozen military conflict and a fragile ceasefire emerges within the next few months. This would mark the end of the large-scale hot phase of the war but with flare-ups that continue for many months, if not years, likely with declining intensity over time. Downside scenarios centre on stronger aggression by Russia driving a major step up of the Western response in terms of sanctions and military support to Ukraine. Key Risk #2: Inflation moves well beyond central bank mandate ranges The momentum of inflation has continued to build at a surprising pace in the US, Europe and elsewhere, necessitating a more aggressive tightening of policy by central banks. As a result, we now expect the US economy to be in outright recession by late next year, and the EA in a growth recession in 2024 with unemployment edging up. Our baseline view is that these developments will spill over to dampen growth in much of the rest of the world and at the same time help to bring inflation back toward mandated levels, diminishing the risk of greater disruptions further down the road. Downside risks could result from further geopolitical or other supply shocks, sending commodity prices higher still. Another risk is that inflation expectations become unanchored, necessitating an even more aggressive response from central banks, resulting in a deeper economic slowdown/recession. We do not believe the Fed will tolerate higher inflation. Elevated inflation is politically unpopular, and they won’t want to lose their hard-won credibility. Key Risk #3: Covid-19 shock increasingly transitioned from pandemic to more manageable endemic, but risks remain in key regions China is seeing fresh lockdowns and significant disruption to economic activity as it sticks to a Zero Covid approach. But other countries are gradually removing restrictions that were first imposed in 2020, moving back toward normal pre-pandemic life. For example, the UK scrapped all legal restrictions related to Covid-19, including compulsory masks in public spaces along with self-isolation following a positive test The bank then goes on to summarize its key macro views, including the US recession in late 2023, its expectations for 50bps of rate hikes in May, June and July, a liftoff by the ECB in September and general tightening everywhere except in China, and its views on the two key themes, inflation and Ukraine: Inflation. We assume that central bank action, while tardy, is just in time to keep inflation expectations anchored. This assumes no further major geopolitical or other supply shocks. Ukraine. Our baseline is that the war morphs into a frozen military conflict and a fragile ceasefire emerges within the next few months. We assume that natural gas flows from Russia to Western Europe will continue. Finally, just in case it wasn't already bearish enough, the bank also lists three key downside risks to its view, which include: Higher-than-expected inflation. If expectations become unanchored and inflation does not recede as expected, this would likely necessitate even more aggressive central bank tightening and a deeper economic slowdown/recession. Escalation in Ukraine. Stronger aggression by Russia could drive a major step up of the Western response in terms of sanctions and military support to Ukraine. New Covid-19 variants. Much of the world is returning to pre-pandemic normality, but a more severe variant could throw this progress off course. The full note is available to pro subscribers in the usual place. Tyler Durden Wed, 04/20/2022 - 15:05.....»»

Category: blogSource: zerohedgeApr 20th, 2022

Futures, Yields And Oil All Rise On Last Day Of Turbulent Week

Futures, Yields And Oil All Rise On Last Day Of Turbulent Week After several extremely volatile days, US equity futures are ending the week in the green (for now) with European equities snapping two days of declines sparked by the Federal Reserve’s plan for aggressive monetary-policy tightening, and Asian stocks trading higher. S&P 500 and Nasdaq 100 futures trimmed earlier gains to trade 0.3% higher as traders weighed the latest developments about the war in Ukraine. Contracts on U.S. stock benchmarks trim earlier gains as traders weigh developments about the war in Ukraine.Nasdaq 100 futures flat; S&P 500 futures +0.1%; Dow Jones futures +0.2%. The dollar rose for a 7th consecutive week and US Treasuries sold off across the curve; gold and bitcoin were flat. Oil was steady after three days of losses stoked by plans to release millions of barrels of crude from strategic reserves and China’s demand-sapping virus outbreak. Markets had a subdued session yesterday after sinking more than 4% in the previous two days as hawkish signals from the Federal Reserve sent Treasury yields surging. Among notable premarket moves, Robinhood slid 3% after Goldman Sachs, not too long ago the lead underwriter on the company's IPO, cut their rating on the stock to sell, saying softening retail engagement levels and profitability concerns will likely limit any outperformance. Some other notable premarket movers: Alcoa (AA US) is 1.2% lower as Credit Suisse analyst Curt Woodworth trims his recommendation to neutral as he views LME aluminum prices near peak levels. Quidel (QDEL US) gained in extended trading Thursday after it posted preliminary revenue for the first quarter that beat the average analyst estimate. CrowdStrike (CRWD US) advanced 4.1%. Analysts responded positively after management set a framework to reach $5 billion in annual recurring revenue (ARR) by 2026, during the cybersecurity company’s investor briefing. WD-40 (WDFC US) is poised to gain after producing a “solid” beat in the second quarter, Jefferies said, adding that an increased market share and new product launches would support volume growth of 3% in 2022. Kura Sushi (KRUS US) shares rose in postmarket trading after the restaurant chain reported a year-over-year jump in quarterly sales. ACM Research (ACMR US) edged lower in extended trading Thursday after saying in a release its first quarter revenue would be “significantly below” expectations, but reiterated full-year revenue guidance for 2022. U.S. stocks are on course to snap a three-week winning streak with investors shedding risk assets following indications from the Fed of a faster-than-expected pace of tightening in monetary policy. Concerns are also growing about the impact of high inflation and slowing economic growth on corporate earnings. The two-year Treasury yield rose five basis points and the 10-year yield climbed one point, reversing some of the curve steepening seen in the wake of the Fed minutes Wednesday, which outlined plans to pare the central bank’s balance sheet by more than $1 trillion a year alongside interest-rate hikes. Global equities are nursing losses for the week as markets grapple with the Fed’s campaign against elevated price pressures, Russia’s grinding war in Ukraine and China’s Covid travails. The lockdown in Shanghai -- which recorded more than 21,000 new daily virus cases -- has become one of President Xi Jinping’s biggest challenges. Expectations are growing that China will take steps to support its economy. “Stocks have had a little bit of a harder time this week digesting the fact that interest rates are going to be higher” amid a major shift in expectations around monetary policy, Anthony Saglimbene, global market strategist at Ameriprise Financial Inc., said on Bloomberg Television. Still, U.S. equities saw a second straight week of inflows at $1.5 billion, with large-cap and growth stocks outperforming small-cap and value sectors, according to Bank of America strategists. Marija Veitmane, a senior strategist at State Street Global Markets, also said stocks still appeared to be the safest option. “Cash gives you nothing with 7% inflation, bonds just had one of the worse quarters in history, and then if you look at stocks, we still have decent earnings outlook, and to me the biggest attraction is really strong balance sheets,” she said on Bloomberg TV. In the latest news out of Ukraine, dozens were killed Friday morning as Russian troops allegedly bombed civilians waiting at a train station to be evacuated from the Donetsk region. Meanwhile, U.S. officials warned that the war may last for weeks, months or even years, as Kyiv’s foreign minister pleaded for urgent military assistance. Here are the latest Ukraine war developments: Ukraine intends to establish up to 10 humanitarian corridors on Friday, those leaving Mariupol will need to use private vehicles. Ukrainian advisor Podolyak says negotiations with Russia continue online constantly, but the mood changed after Bucha events, via Reuters. Kremlin says it does not understand EU concerns about European countries paying for Russian gas in RUB, adds Commission President von der Leyen probably needs more information. On planned EU ban of Russian coal, says coal is in high demand. Special operation in Ukraine could be completed in the foreseeable future, given aims are being achieved and work is being carried out by peace negotiators and the military. EU ready to release EUR 500mln for arms to Ukraine, according to AFP citing EU chief. Russia says it has destroyed a training centre for foreign mercenaries within Ukraine, was located north of Odesa, via Tass. Japan's Industry Ministry plans to reduce Russian coal imports gradually while looking for alternative suppliers, according to Reuters. Ukraine PM says they have large stocks of grain, cereals and vegetable oil. Are able to provide themselves with food; this year's harvest will be 20% less YY. Ukraine gas grid warns that Russian actions could impact gas flows to Europe, via Reuters. On Thursday, St Louis Fed president James Bullard said he prefers boosting the policy rate to 3%-3.25% in the second half of 2022. Chicago Fed President Charles Evans and his Atlanta counterpart Raphael Bostic said they favor raising rates to neutral while monitoring the economy’s performance. The steepening in the Treasury yield curve contrasts with the flattening and inversions that have vexed markets this year. The two-year rate topped the 10-year last week for the first time since 2019, a possible warning of recession. “We’re seeing a tactical re-steepening right now but the curve is going to continue to flatten,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television. “That’s because the Fed has told us, we’d like to get to neutral expeditiously. On top of that, they may need to tighten beyond neutral. Front-end yields can still go higher.” In Europe, Euro Stoxx 50 rallies over 1.8% before stalling while the Stoxx 600 index climbed 1.2% but drifted off best levels as investors took advantage of beaten-down stock valuations with energy, banks and autos the strongest-performing sectors. Banks outperformed as Banco BPM SpA surged after Credit Agricole SA bought a 9.2% stake in the Italian lender. An Asia-Pacific share index eked out a small increase.  Here are some of the biggest European movers today: Scout24 shares rise as much as 17%, the most intraday since December 2018, after a report that Hellman & Friedman, EQT and Permira have discussed taking the firm private. Banco BPM shares rise as much as 17% after Credit Agricole bought a 9.2% stake in the Italian lender, with Bank of America saying the deal is a reminder that real value should be based on fundamentals. Sodexo shares jump as much as 7.4%, their biggest single-day gain in a month, after RBC Capital Markets upgrades the French caterer to outperform from sector perform. K+S gains as much as 10% after JPMorgan double-upgraded the shares to overweight from underweight, seeing a very positive environment for fertilizers amid supply disruptions and high energy prices. Atlantia shares rise as much as 4.5% following a report in a Italian newspaper that the Benetton family and Blackstone may start their takeover offer for Atlantia at more than EU22 per share. Saab rise as much as 5% as SEB upgrades the shares to buy from hold on the Swedish defense firm’s sales potential in the coming decade in the wake of Russia’s invasion of Ukraine. Moncler shares rise as much as 4.2% after Barclays upgrades the Italian luxury company to overweight, citing an “attractive” defensive profile in the current environment. Genmab fall as much as 10%, the most since September 2020, after saying a tribunal decided in favor of Janssen Biotech over two issues surrounding the cancer drug daratumumab (Darzalex). Ahead of this weekend's French election, Macron's lead is shrinking: the current President led his rivals in the April 10 election with 26.2% support, down from 27.2% a day earlier, according to a polling average calculated by Bloomberg on April 8. Macron was 3.5 percentage points ahead of second-placed Marine Le Pen, down from 4.1 points. Asian stocks edged higher on Friday, poised to snap three days of declines as traders assessed the prospect of policy easing by Beijing.  The MSCI Asia Pacific Index erased early losses of as much as 0.4% to climb 0.2%. Chinese property and infrastructure-related stocks surged on hopes for fiscal as well as monetary easing as the government seeks to prop up growth.   For the week, the Asian benchmark was down 2% as investors turned cautious on risk assets after latest comments from the Federal Reserve suggested aggressive tightening lies ahead. Tech shares were hit hard in particular, with the MSCI Asia-Pacific Information Technology Index losing 4% this week, on track for its worst performance since end-January. “There appears to be speculation that monetary easing by the PBOC might be imminent,” said Kazutaka Kubo, senior economist at Okasan Securities. There are also expectations that once lockdowns are over, the economy could be supported by pent-up demand, he added.  Chinese authorities have repeatedly vowed to support the economy and markets in thet past few weeks, as rising Covid-19 infections and lockdowns darken the outlook for growth. The pledges have spurred bets that some form of monetary easing may come soon.  Movements in most national benchmarks in the region were modest on Friday, gaining less than 1%. Stocks in the Philippines and Indonesia outperformed, while Singapore shares fell.  Indian stocks gained after the Reserve Bank of India kept borrowing costs at a record low, while India’s 10-year bond yield hit 7% - the highest since 2019 - as the nation’s central bank boosted an inflation forecast. The central bank also announced the start of policy normalization as the pandemic’s impact fades. The S&P BSE Sensex climbed 0.7% to 59,447.18 in Mumbai to complete a second week of gains, while the NSE Nifty 50 Index rose 0.8%. Gauges of small- and mid-sized companies gained 1% and 0.9%, respectively. The Reserve Bank of India’s monetary policy panel held the benchmark rate at 4%, in line with predictions of all 36 economists surveyed by Bloomberg. RBI Governor Shaktikanta Das said the central bank will start focusing on withdrawal of banking liquidity accommodation to target inflation but such a move would be “multi-year” and carried out without disrupting the markets. “Equity markets will like the RBI’s continued focus on growth and its commitment to an accommodative stance,” said Abhay Agarwal, a fund manager at Mumbai-based Piper Serica Advisors Pvt.  The RBI’s commentary means adequate flow of liquidity will continue and immediate beneficiaries will be consumers who are borrowing to purchase real estate and autos, he added. All but one of 19 sectoral sub-indexes compiled by BSE Ltd. advanced, led by a gauge of power companies. Reliance Industries Ltd. was a key gainer on the Sensex, which saw 22 of its 30 components advance. The RBI has comforted markets by refraining from being aggressive, unlike its global peers, and by ensuring that the liquidity withdrawal will be gradual, Yesha Shah, head of equity research at Samco Securities wrote in a note.  “On the growth front, one can assume that the central bank expects private investment to ramp up now that capacity utilization has improved further,” she said, adding the policy lays the framework for a possible rate increase in coming reviews. Australian stocks advanced - the S&P/ASX 200 index rose 0.5% to close at 7,478.00 - supported by materials and industrial stocks. GrainCorp shares surged to a record high, after the firm upgraded its FY22 earnings guidance as high levels of rain in Australia lay a path for a bumper crop.  Platinum Asset plunged to an all-time low after the company reported net outflows of A$222 million in March. In New Zealand, the S&P/NZX 50 index was little changed at 12,066.27. In rates, Treasuries fell across the curve, with the front-end of the Treasuries curve pressured lower, flattening 2s10s spread by ~5bp as 2-year yields trade more than 7bp cheaper on the day at ~2.54%. S&P 500 futures near top of Thursday’s range, following bigger advance for European stocks after three straight declines. Yields across long-end of the curve are little changed on the day, as flattening extends out to 5s30s spread which is tighter by ~4bp; 10-year yields around 2.683%, cheaper by 2.5bp vs Thursday close; bunds and gilts outperform by 1bp-2bp in the sector. Bunds reversed opening gains, adding to a three-day run of declines; French debt underperformed bunds ahead of presidential elections beginning Sunday. The German curve bull-flattens, richening 2bps across the back end. Peripheral spreads widen to core with Italy underperforming. In FX, Bloomberg dollar index advanced a seventh consecutive day and neared the strongest level since July 2020 as the greenback advanced against all of its Group-of-10 peers apart from the Norwegian krone. The euro pared losses after touching a one-month low against the dollar in early London trading. The pound fell to the lowest in more than three weeks as bets for aggressive policy tightening by the Federal Reserve boost the dollar. Gilts rose across the curve as U.S. Treasury yields stabilized following the recent selloff. The Australian and New Zealand dollars were the worst-performing G-10 currencies; Australia’s yield curve steepened following a similar move in Treasuries on Thursday. Most Japanese government bonds rose, thanks to support from the central bank’s regular purchase operations. The yen briefly reversed early an Asia session loss after an ex-BOJ official said there’s likelihood of a policy shift as soon as this summer. Bitcoin is contained and unable to derive traction either way from the broader risk tone. Strike payment platform launches Shopify (SHOP) integration, which allows merchants to accept Bitcoin (BTC), according to Bloomberg. In commodities, crude futures trade within Thursday’s range; WTI holds above $96, Brent stalls near $102. Spot gold holds steady near $1,930/oz. Most base metals trade well: LME zinc and lead outperforming, tin lags. To the day ahead now. Central bank speakers include the ECB’s de Cos, Centeno, Panetta, Stournaras, Makhlouf and Herodotou. Italian retail sales for February and Canadian employment for March round out this week’s data. Market Snapshot S&P 500 futures up 0.5% to 4,517.00 STOXX Europe 600 up 1.4% to 461.27 MXAP up 0.2% to 176.33 MXAPJ up 0.3% to 584.66 Nikkei up 0.4% to 26,985.80 Topix up 0.2% to 1,896.79 Hang Seng Index up 0.3% to 21,872.01 Shanghai Composite up 0.5% to 3,251.85 Sensex up 0.9% to 59,558.63 Australia S&P/ASX 200 up 0.5% to 7,477.99 Kospi up 0.2% to 2,700.39 Brent Futures up 1.2% to $101.76/bbl Gold spot down 0.0% to $1,931.38 U.S. Dollar Index up 0.14% to 99.89 German 10Y yield little changed at 0.68% Euro down 0.1% to $1.0865 Top Overnight News from Bloomberg The Bank of Russia delivered a surprise cut in its key interest rate Friday, reversing some of the steep increase it made after the invasion of Ukraine as the ruble recovered. The central bank lowered the rate to 17% from 20% and said further cuts could be made at upcoming meetings if conditions permit EU countries agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenues. Japan is also looking to curb imports, in what could be a shift in policy from one of the world’s largest energy buyers The EU is aiming to lock in progress on trade and technology disputes with the U.S. during President Joe Biden’s first term amid concerns that any gains could otherwise be easily reversed The relationship between Australia’s equities and currency has become the closest in a decade as commodity prices surge. The 180-day correlation between the country’s stock benchmark and the Australian dollar has climbed to the highest level since late 2011, according to data compiled by Bloomberg. The strengthened ties come as rallies in materials from oil to iron ore have boosted both the nation’s equities and the Aussie The ECB will look past threats to economic growth from the war in Ukraine, ending asset purchases in the summer and setting the stage for a first interest-rate increase in more than a decade in December, according to a survey of economists Junk bond sales across Europe are experiencing their longest drought in more than 10 years, as the Russian invasion of Ukraine and the prospect of rising interest rates neuter risk appetite A more detailed look at global markets courtesy of Newsquawk: Asia-Pacific stocks were choppy and eventually conformed to a mixed picture; some weakness was seen shortly after the Chinese cash open. ASX 200 bucked the trend and was propped up by its energy and gold names. Nikkei 225 was choppy and moved in tandem with action in USD/JPY whilst the KOSPI was weighed on by its chip and telecoms sectors. Hang Seng remained pressured by losses across its large constituents - Alibaba and JD.com. Shanghai Comp swung between gains and losses but overall remained supported by reports from China's Securities Journal which noted of a potential PBoC RRR in Q2. Top Asian News Hong Kong Tycoons Heed China, Endorse John Lee to lead City Chinese Tech Stocks Fall as Tencent Shuts Game Streaming Site Abu Dhabi’s IHC Invests $2 Billion in Billionaire Adani’s Empire ADDX Rolls Out Private Market Services for Wealth Managers European bourses are firmer across the board, Euro Stoxx 50 +1.5%, bouncing in a morning of quiet newsflow with the broader tone modestly risk-on. Albeit, benchmarks are still negative on the week and some way from earlier WTD peaks; unsurprisingly, sectors are all in the green with defensive-bias names lagging. Stateside, futures are similarly in the green, ES +0.2%, though magnitudes are more contained ahead of a limited US schedule to round off the week. Top European News U.S. Sanctions Russian Miner Producing 30% of World’s Diamonds Atlantia Gains After Reports of Offer Price Above EU22/Share Generali CEO Says He Won’t Change Plan Challenged by Investors Baader Downgrades Six Chemical Firms, Citing Ukraine War In FX: DXY touches 100.000 as US Treasury yields continue to soar and curve steepen, but unable to break barrier. Kiwi underperforms awaiting NZIER Q1 survey, while Aussie holds up better after hawkish warning in RBA FSR; NZD/USD around 0.6950, AUD/USD nearer 0.7460. Yen sub-124.00 as Japanese export supply is absorbed, Euro supported by bids circa 1.0850 and Sterling treading water above 1.3000. Rouble relatively resilient in the face of 300 bp CBR rate reduction as it remains above pre-conflict highs. Fixed income: Choppy trade in bonds approaching the end of another very bearish week. Bunds and Gilts nurse losses mostly above par around 157.00 and 120.00 handles vs fresh cycle lows of 156.40 and 119.83. US Treasuries most seeing red, but curve less steep in correction after hawkish FOMC minutes and Fed commentary, via Brainard and Bullard especially Central Banks: RBA Financial Stability Review: important that borrowers are prepared for an increase interest rates; global asset markets are vulnerable to larger-than-expected rate increases, via Reuters. RBI leave rates unchanged as expected, retains "accommodative" stance as expected; will focus on withdrawing accommodation going forward. RBI is to restore LAF corridor to 50bps and floor to be constituted by SDF, according to Reuters. CBRT April survey sees Turkish End-Year CPI at 46.44% (prev. 40.47%) CNB Minutes (March): Dedek and Michl voted in the minority for stable rates. Board assessed risks and uncertainties of winter forecast as being markedly inflationary, particularly in short-term CBR cuts its Key Rate to 17.00% (prev. 20.00%) as of April 11th; holds open the prospect of further key rate reduction at its upcoming meetings. In commodities, WTI and Brent are bolstered amid broader sentiment, though crude/geopolitical specific developments have been limited In-fitting with equities, the benchmarks are negative on the week and some way shy of best levels as such. New York will suspend the state gas tax from June 1st to December 31st, according to Reuters. Barclays raises oil forecasts by USD 7-8/bb assuming no material disruption in Russian supplies beyond Q2 2022, according to Reuters. Spot gold is marginally firmer, but, remains drawn to USD 1930/oz after marginally eclipsing the level overnight; base metals bid in-line with sentiment. US Event Calendar 10:00: Feb. Wholesale Trade Sales MoM, est. 0.8%, prior 4.0% 10:00: Feb. Wholesale Inventories MoM, est. 2.1%, prior 2.1% DB's Henry Allen concludes the overnight wrap Yesterday’s ECB minutes reinforced what we learned from the March FOMC minutes and soon-to-be Vice Chair Brainard earlier this week – there are no doves in fox holes – by casting doubt on the likelihood of inflation returning to target this year. We also heard from St. Louis Fed President Bullard, the hawk leading the charge, who called for a fed funds rates above 3% this year. That would beckon a faster pace of hikes along with more aggregate tightening. Regional Presidents Bostic and Evans, non-voters each, meanwhile, want to get rates to neutral. The tighter path of global policy continued to drive sovereign yields higher and equity indices lower. Market-implied ECB policy rates by the end of the year increased +6.0bps to +62.3bps, the highest level this cycle. Sovereign yields rose to multi-year highs of their own, with those on 10yr bund (+3.4bps), OATs (+4.4bps) and BTPs (+3.5bps) moving higher, with 10yr breakevens falling in Germany (-1.9bps) and France (-0.7bps) for the first time in five days, while Italian breakevens were essentially flat (+0.2bps). Meanwhile, fed funds futures by end-2022 staged a slight retreat, falling -1.2bps to 2.50%, albeit +10bps higher than a week ago. While the probability of a +50bp hike in May remained steady at 85.4%. 2yr yields fell in line, declining -1.2bps, while 10yr Treasuries gained +6.0bps, leaving the curve at +19.2bps. If you’re up on the yield curve discourse, you’ll know the Fed discounts the signal coming from 2s10s, instead preferring shorter-dated measures of the yield curve, which wound up flattening yesterday. Yesterday’s yield curve steepening should not be viewed in a vacuum. The 2s10s curve has taken a 58.3bp round trip over the last two weeks, falling from +23.1bps two weeks ago, to -8.0bps last Friday, to +19.2bps at yesterday’s close. The fundamental outlook hasn’t changed dramatically over that time span. Instead, this likely reflects the elevated rates volatility environment we currently sit in. This, all before QT has even begun. Real Treasury yields continue to march higher in the back end, with 10yr real yields gaining +5.3bps to -0.19%, their highest level since March 2020, having gained +25.1bps this week alone, and +91.3bps YTD. Despite higher rates and more restrictive language, the S&P 500 ended the day +0.43% higher, after losing -2.21% the previous two sessions. The S&P 500 is now -5.58% YTD following the massive repricing of Fed expectations, while the Bloomberg Financial Conditions index is just a hair tighter than the post-2010 average. Monetary policy may need to adjust tighter yet to engineer the demand slowdown commensurate with a return of inflation to target. European equities were modestly lower, with the STOXX 600 slipping -0.21% and the DAX down -0.52%. The CAC (-0.57%) underperformed the STOXX 600 for the seventh consecutive session, on the back of growing Presidential election jitters. Polls between President Macron and his closest rival, Marine Le Pen, tightened. In particular, one poll (caveat emptor) from Atlas actually put Le Pen marginally ahead of Macron in a head-to-head runoff for the first time, by 50.5%-49.5%. The news immediately saw the French 10yr spread over bund yields widen in response, ending the day at 54.2bps, its widest since March 2020. While one poll a race does not make, it’s worth noting the broader poll narrowing over the last month. That has seen Macron’s lead in the first round over Le Pen go from 30%-17% a month ago (according to Politico’s average), to just 27%-22% now. In the second round, polls are likewise pointing to a tight contest, with Macron ahead of Le Pen by 52-48% (Ifop) and 53%-47% (Ipsos). For those looking for more details on the presidential race, DB’s Marc de-Muizon put out a guide yesterday (link here), where he looks at the current state of play in the election, the main aspects of both Macron and Le Pen’s programmes, as well as some potential challenges for both candidates. Back to the US, in a rare show of bi-partisanship, the Senate voted 100-0 to discontinue normal trade relations with Russia and Belarus and to ban Russian oil imports. Brent crude prices fell below $100/bbl for the first time since mid-March intraday, ultimately falling -0.48% to close at $100.58/bbl. The EU also moved to include a Russian coal embargo in its fifth round of sanctions. The opprobrium was global, with the UN General Assembly voting to suspend Russia from the Human Rights Council following its human rights violations, the first such suspension since Libya in 2011. On the ground, the Kremlin admitted to enduring heavy troop losses, and while the locus of the war still seems set to shift eastward, Ukrainian commanders have their guard up for a renewed assault on Kyiv. Elsewhere, Judge Ketanji Brown Jackson was confirmed to the Supreme Court. It’s expected the Senate will now turn to approving President Biden’s nominations for the Fed Board of Governors later this month, which will still have one empty seat following Sarah Bloom Raskin withdrawing her nomination. Asian equity markets this morning aren’t matching Wall Street’s resilience from yesterday. The Hang Seng (-0.57%) is leading the moves lower with the Nikkei (-0.08%), Kospi (-0.10%), Shanghai Composite (-0.06%) and CSI (-0.10%) all slightly on the wrong foot. Along with tighter global monetary policy, China’s Covid outbreak is worsening and dragging on sentiment. US stock futures are unperturbed, with S&P 500 and Nasdaq futures virtually unchanged. Meanwhile, the aforementioned rates volatility continues to rear its head, with the curve snapping back flatter as we go to press, with 2yr Treasuries +4.2bps higher and the 10yr a bit softer at -0.5bps. Oil prices are extending their decline this morning with Brent futures (-0.74%) sliding below $100/bbl. On the data side, Japan’s current account swung back to surplus in February to +¥1.6 trillion, following a -¥1.2 trillion deficit in January - the second-biggest deficit on record. The main release yesterday came from the US weekly initial jobless claims, which fell to their lowest level since 1968, with just 166k initial claims in the week through April 2 (vs. 200k expected). In addition, the previous week was revised down to 171k from 202k, which left the smoother 4-week moving average at 170k, the lowest ever in the entire data series going back to 1967. Euro Area retail sales grew by +0.3% in February (vs. +0.5% expected), and German industrial production grew by +0.2% that same month, in line with expectations. To the day ahead now. Central bank speakers include the ECB’s de Cos, Centeno, Panetta, Stournaras, Makhlouf and Herodotou. Italian retail sales for February and Canadian employment for March round out this week’s data. Tyler Durden Fri, 04/08/2022 - 07:51.....»»

Category: blogSource: zerohedgeApr 8th, 2022

FOMC Preview: The First Rate Hike Since 2018

FOMC Preview: The First Rate Hike Since 2018 Central banks face a challenging trade-off: do they react to the labor market close to full employment and near record jump in inflation visible even before the latest energy price moves to prevent a further unanchoring of inflation expectations to the upside, or do they react to the considerable downside risks to the economic outlook from a massive geopolitical and energy price shock, preferring not to add volatility to the current market environment. The ECB opted for the former, and the Fed is expected to follow suit. Tomorrow the Fed will hike 25bps - its first rate hike since Dec 2018 and the first liftoff (from zero) since Dec. 2015. In his recent testimony to Congress, Chair Powell summed up the compromise that the FOMC appears to have reached by noting in his recent testimony to Congress that he will support a 25bp hike at the March meeting, but is open to hiking by more than 25bp at a future meeting if inflation surprises to the upside or remains persistently high. To be sure, many will ask why just 25bps - after all, the last time inflation was 7.9%, the Fed Funds rate was 15%. The answer is that never before has the US financial system been so hyperfinancialized, and any "rushed" attempt to lift rates will lead to a complete collapse in risk assets. The Fed will also update the Summary of Economic Projections (SEP) to show that inflation will remain higher for longer and result in hikes of 100-125bps in each of ’22 & ’23, even though markets are far more hawkish, and have priced in 7 rate hikes for all of 2022, and a 15% chance of a 50bps rate hike on Wednesday. The Fed may also trim growth forecasts because of geopolitical risks. According to BofA's Ralf Preusser, Powell will offer limited guidance on the outlook for hikes: he will stress elevated uncertainty, data dependency, & retain option for 50bp hikes if needed. The 25bp vs. 50bp debate in the months ahead will also depend on the war in Ukraine. The war has raised energy prices, tightened financial conditions, and lowered growth prospects abroad, implying higher inflation and lower growth in the US. Goldman suspects that the FOMC will be reluctant to consider a 50bp hike until downside risks to the global economy from the war diminish. While a rate hike is fully priced in, the market focus will be on the outlook for hikes and QT. In its FOMC preview, Goldman writes that it does not expect the war to knock the Fed off of a 25bp-per-meeting tightening path. With inflation likely to remain uncomfortably high all year, the FOMC will probably only pause if it thinks further tightening risks pushing the economy into recession. Goldman expects seven 25bp hikes this year - in line with the market - one at every meeting this year, followed by four quarterly hikes in 2023, for a total of 11 rate hikes by the end of 2023, and for a terminal rate of 2.75-3%. Going down the SEP, the dots are likely to jump again in March, though the FOMC’s forecast will be less hawkish than the market's. Even more hawkish than BofA, Goldman expects the median dot to show six hikes in 2022, but the risks are tilted to the downside, especially if FOMC participants view balance sheet reduction as equivalent to multiple rate hikes. In 2023, GS expects the median dot to show four more hikes in 2023 and a terminal rate of 2.5-2.75%, just above the FOMC’s 2.5% neutral rate estimate. Goldman also believes that the FOMC will avoid appearing to commit to a specific pace of tightening in its statement. The Committee could adapt Powell’s recent comment, “We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market.” An interesting question, according to Bank of America, is whether the latest evidence of liquidity pressure in the Treasury market is causing a rethink on timing and design of QT. On QT, the bank expects the Fed to finalize their redemption caps for UST coupons, MBS, & bills (BofA cap base case: UST coupons = $60b/m, MBS = $40b/m, bills = no cap); these will likely be updated in the Fed’s “principles for reducing balance sheet” document. BofA believes that QT details will be finalized at this meeting and allow the Fed to start QT as early as May, however, QT risks being delayed due to deteriorating UST liquidity and a Fed that does not want to add market uncertainty. According to the bank, there are risks that QT could get pushed to June or July; and may also start with only MBS QT if UST liquidity remains strained. "A later QT start could add to curve flattening pressures", BofA warns. Goldman does not believe that the Fed will rush QT and reminds clients that Powell said in his testimony to Congress that the FOMC will not finalize its plan to shrink the Fed’s balance sheet at the March meeting. Instead, the FOMC will likely finalize and publish its plan at the May meeting and then announce the start of balance sheet reduction at the June meeting. That said, where Goldman does agree with BofA is in the expectation of how much QT will be once it does begin: the bank expects the FOMC to permit passive runoff capped at $60bn per month for US Treasury securities (UST) and $40bn per month for mortgage-backed securities (MBS), with at most a brief ramp-up period to reach those peak rates. Some Fed officials have also raised the possibility of permitting uncapped runoff of MBS. This would have almost no incremental impact on runoff relative to the $40bn per month cap but it might seem like an agreeable compromise to participants who had advocated sales of MBS. Comments from Fed officials suggest that the FOMC has also discussed the possibility of treating bills separately from other Treasury securities and letting them run off more quickly. In sum, Goldman's assumptions imply that the balance sheet will ultimately shrink from just under $9tn today to just over $6tn in 2025, although since a recession will hit long before then, this estimate appears at best naive. A more detailed FOMC preview is below, courtesy of Newsquawk The Fed Funds target range is expected to be lifted by 25bps in the first hike since COVID-19 with inflation running hot and the labor market widely considered close to full employment. The accompanying SEPs are expected to signal a string of hikes to follow this year in wake of ramped inflation forecasts, countered with lower growth forecasts. The guidance will be gauged to see whether FOMC is moving towards the market pricing of front-loaded hikes (seven this year), or a more measured three/four hikes. The uncertainty around the Ukraine invasion has pushed back on the chances of 50bps hikes, but the door is still open. Powell could provide more details around balance sheet reduction, but plans/launch are not to be finalised until mid-2022. HIKE INCREMENT: The majority of Fed officials have come out in support of a 25bps liftoff for the Federal Funds target range, particularly in wake of the Ukraine uncertainty. Fed Chair Powell said in his testimony in the Capitol that he thinks it is appropriate to hike by 25bps in March. Although he warned if inflation doesn't begin to come down, "we're prepared to raise by more than that amount in a meeting or meetings", keeping the door open on 50bps in future meetings. A Reuters poll of economists saw all respondents forecast a 25bps hike, while 20/37 economists saw the risk of a 50bps hike later this year as high or very high. Rates markets are implying a 5% chance of a 50bps liftoff. On administered rates, the majority expect the IOR (currently 0.15%) and RRP (currently 0.05%) to both be hiked by the same 25bps increment with money markets having been stable and the effective Federal Funds rate comfortably within the target range. RATE PATH: Bloomberg's survey has 28% of economists seeing the March statement indicating a hike in May, 45% expect signalling for a string of increases, and 28% see no forward guidance in the statement. Meanwhile, the Dot Plot is expected to signal more hikes are to follow this year in the Fed's efforts to get the Fed Funds closer to neutral (largely seen at 2.5%). Powell has said that every meeting is live for 2022, but the broader discourse has seen a binomial  outlook develop, with one camp leaning towards three/four hikes while the other leans towards the mid-to-high single digits, corroborating with market pricing. On which, after a Ukraine-induced unwind in market hike pricing in early March, rates markets are now back to pricing seven 25bps hikes by year-end, supported recently by the hawkish ECB and given the Fed has been undeterred in its policy outlook in wake of the invasion. The cooling of market volatility has helped. BALANCE SHEET: Powell has said balance sheet normalisation/reduction plans will not be finalised at the March FOMC but will occur some time after the initial rate lift off. Little new details have been touted by officials in wake of the announcement made at the January confab either, where the Fed released its Principles for Reducing the Size of the Federal Reserve's Balance Sheet. Powell may use the upcoming FOMC to give a calendar guide to when the process will begin, where expectations range largely for the rolloff to begin between July and September. And potentially on pace and composition, with Bloomberg's median survey of economist estimates seeing the balance sheet at USD 8.5tln by 2022-end compared to the current USD 9tln area, and another USD 1tln reduction is expected in 2023. Meanwhile, amid some calls for faster MBS roll-off, most economists don't expect a faster relative pace of MBS vs Treasuries reduction to begin with, although the Fed has kept the door open to that possibility going ahead, with some officials touting potential outright sales, instead of the current rolloff plans. FINANCIAL CONDITIONS: A big part of the argument for 25bps liftoff instead of 50bps is the already realised deterioration in financial conditions, tightening the flow of credit to the economy. Goldman Sachs' Global Financial Conditions index hit its tightest since May 2009, tightening 130bps since the Ukraine invasion, and adding to the increased certainty of central bank tightening paths that were already beginning to affect conditions beforehand. That tightening has been accentuated by a spell of funding pressures amid the market volatility, seen in lower stocks and record-breaking commodity strength, playing into credit spread widening. Note the recent cooling of those pressures, however. Albeit, the market is already tightening and the Fed now needs to ratify those expectations with  its liftoff, but there's less urgency to surprise too hawkishly. INFLATION: Headline Feb CPI rose 7.9% Y/Y, with the core not far behind at +6.4% as price pressures become more broad based. Figures were in line with the Wall St consensus and presumably a slight sigh of relief for policymakers that there wasn't another right tail print, albeit still at alarming levels. Further, given the approaching commodity shock, the Fed will now be viewing the figures as a base to grow off/sustain, rather than a peak that was expected before the Ukraine invasion. Even after the Feb NFP saw signs of cooling wage growth and easing price spiral fears, it's noteworthy Fed's Evans (non-voter; last speaker ahead of FOMC blackout) on CNBC said the report didn't change much for the Fed and took the time to warn about further approaching inflation, with particular concern around food prices. Indeed, the Feb CPI report saw food prices rise 1% M/M, the largest since the early COVID period, with risks skewed to the upside ahead given the rally in ags. And that's not to mention the already lofty 3.5% spike in energy M/M, and over 25% rise Y/Y. The Fed has largely kept a cool head to look through the inflation, with the party line being the anchoring of longer term inflation expectations keeping credence to the idea that the pressures will recede. However, the recent breakout of market-based, longer-term inflation expectations post-Ukraine will be raising eyebrows and emboldening tightening plans, with 5yr5yr CPI swaps rising further towards their 2013/14 peaks of 3% and away from their 2% target. DOTS: Bloomberg's economist survey sees the FOMC raising its PCE forecasts for 2022 to a 3.9% median from 2.6% in December, cutting its 2022 GDP median to 3.3% from 4.0%, while maintaining the unemployment median at 3.5% for the next several years, according to the survey. Median dot expectations via Bloomberg's survey: FEDERAL FUNDS RATE: exp. at 1.1% in 2022 (prev. 0.9% in Dec), 1.9% in 2023 (prev. 1.6%), 2.38% in 2024 (prev. 2.1%), 2.5% in longer run (prev. 2.5%) CHANGE IN REAL GDP: exp. at 3.3% in 2022 (prev. 4.0% in Dec), 2.2% in 2023 (prev. 2.2%), 2.0% in 2024 (prev. 2.0%), 1.8% in longer run (prev. 1.8%) UNEMPLOYMENT RATE: exp. at 3.5% in 2022 (prev. 3.5% in Dec), 3.5% in 2023 (prev. 3.5%), 3.5% in 2024 (prev. 3.5%), 3.5% in longer run (prev. 4.0%) PCE INFLATION: exp. at 3.9% in 2022 (prev. 2.6% in Dec), 2.5% in 2023 (prev. 2.3%), 2.1% in 2024 (prev. 2.1%), 2.0% in longer run (prev. 2.0%) CORE PCE INFLATION: exp. at 3.3% in 2022 (prev. 2.7% in Dec), 2.4% in 2023 (prev. 2.3%), 2.1% in 2024 (prev. 2.1%) Tyler Durden Tue, 03/15/2022 - 21:40.....»»

Category: smallbizSource: nytMar 15th, 2022

"Suffocating" Impact From Higher Rates Will Force The Fed To Ease Much Sooner Than Expected

"Suffocating" Impact From Higher Rates Will Force The Fed To Ease Much Sooner Than Expected Back in December, when we first showed that the market had begun pricing in rate cuts as the forward OIS curve inverted, many laughed: after all, such a dire (for the Fed) outcome - one which suggested that the Fed's tightening would lead to a hard landing, was seen as anathema by the majority who believed (erroneously) that the Fed would keep hiking and hiking and hiking... and the US economy would just somehow take it without imploding. Well, fast forward to today when nobody is laughing any more. First, as we noted on Sunday, in one of his multiple "market dislocation" charts, DB's Jim Reid showed a chart of of two-year forward OIS rates (the same chart we pointed to back in December) which are now at their lowest in a decade. As Reid explained, "markets are now pricing the Fed funds rate to be 36bps higher from 2023-2024 than 2025- 2026. Markets are expecting the Fed to have to quickly cut rates shortly after the hiking cycle begins, which looks like a hard landing." Second, as Nomura's Charie McElligott writes in his daily note as he previews what the Fed will do on Wednesday, as Powell scrambles to contain runaway inflation (UBS' economist Paul Donovan said this morning that "there is little a central bank can do about commodity prices—Fed Chair Powell can hardly dig an oil well in the middle of Washington D.C") "the market expects the hiking cycle to be completed by early / mid ’23 (with the July ’23 – Dec ’23 spread @ -2bps), while a full-blown inversion in EDZ3-Z4 (Dec ’23 – Dec ’24) shows that the Fed’s guidance will turn outright dovish towards easing in ’24 (-20bps priced…i.e. 80% odds of a Fed CUT in that window)." Spoiler alert: the easing will begin in 2023, if not late 2022, but we'll cross that bridge (soon enough). Some more details from the CME note: I continue to believe that with March done-and-dusted at 25bps, May is absolutely a very high probability of a 50bps move for the Fed, which would then comfortably get us to 5 hikes by end Summer and 7 hikes through the Dec meeting (where market-implieds are already moving / leading the Fed to) A front-loaded FOMC hiking cycle would ultimately be the right outcome for the Economy, as it “rips off the bandaid” and gets us to “Neutral” policy rate fast—critically, giving the Fed future optionality across two opposing scenarios moving-forward: The first scenario would be to “buy time,” in order to see if inflation “relief” organically appears in 2H22 (i.e. supply chain issues easing in-time, or “demand destruction” from higher prices), which would allow the Fed to accordingly slow tightening efforts and avoid “overtightening policy error” by going fast then pausing, theoretically improving the odds that the economy could be managed back into a goldilocks “soft landing” The second scenario would be “if you’re gonna break it, break it fast” move in the case that there is no pull-back in inflation, as the latest Commodities disruption catalysts (Russia sanctions effectively removing their supply from a western world that is “short” them, along with Ukraine infrastructure destruction; new wave of COVID in China seeing lockdowns which further disrupt global shipping / supply chain) only extend the inflation shocks—which perversely then requires global Central Banks to actually seek to “hike us into a recession” so that a growth crash works to destroy demand and regain control over inflation And despite these seemingly polar opposite scenarios listed above, the market has already made up its mind as to what it means: EDM3-Z3 shows us that the market expects the hiking cycle to be completed by early / mid ’23 (with the July ’23 – Dec ’23 spread @ -2bps), while a full-blown inversion in EDZ3-Z4 (Dec ’23 – Dec ’24) shows that the Fed’s guidance will turn outright DOVISH towards EASING in ’24 (-20bps priced…i.e. 80% odds of a Fed CUT in that window) Finally, we go to Bloomberg's Simon White who today published the most scathing assessment of just how cornered Powell finds himself, and how brief the upcoming rate hike cycle will be, and how the economy is already suffocating from higher rates... even though the Fed hasn't even hiked once yet, and only concluded QE last week: Suffocating Impact From Higher Rates to Cause Early Fed Pullback The Fed is almost certain to hike rates this week for the first time since 2018. Focus will be on how hawkish or dovish the move is. Regardless, higher rates are already having a throttling effect across the U.S. economy, and growth in the U.S. is set to slow sharply this year. Fed hike expectations continue to look too ambitious. The move in longer-term yields has thus far been relatively contained given the degree of Fed tightening priced in. But the flatness in the yield curve is incommensurate with the degree of uncertainty captured by the rapid rise in inflation and inflation volatility. GDP is a lagging indicator, and we are already beginning to see the lagged effect from higher rates have a pervasive impact across the U.S. economy. With U.S. 10y rates touching 2.10% and making a 30-month high, that effect will only intensify in the coming months. Consumption remains the biggest component of GDP, accounting for about 67% of annual output. Normally, growth in consumption is driven by credit, but stimulus checks and other fiscal transfers drove personal incomes significantly higher during the pandemic, fueling a mini-boom in consumption. Now that disposable-income growth is beginning to fade, an extension of credit will be necessary to maintain the prevailing rate of consumption. However, rising rates are causing lending standards to tighten and banks are becoming less willing to extend consumer loans. Consumption will face growing headwinds as credit is squeezed. Along with consumption, inventories have been the other main driver of GDP growth in recent quarters. Lockdowns caused widespread factory shutdowns, while demand for goods remained undiminished. Inventories were quickly depleted. As lockdowns eased, firms embarked on an inventory boom. This was seen around the world, with global inventory-to-sales ratios reaching 20-year highs. Now that the demand/supply imbalance is less extreme, the impulse from restocking is set to fade. At the same time, tighter credit conditions will further hamper the growth contribution from restocking as inventories become more costly to finance. Widening credit spreads point to the end of the current restocking cycle, and GDP losing a significant support. Housing, too, is facing mounting headwinds from higher rates. The housing market in the US is beginning to look as overvalued as it was in 2005, prior to the housing crisis. The dynamics are different this time -- this is a supply-led rise in prices rather than a credit-driven demand one -- but once again rising rates are having a deadening impact.  The 30-year mortgage rate has risen over 100bps over the last year, taking the rate to 4.33%. Rises in mortgage rates typically precede falls in building permits, an excellent leading indicator for the housing market overall. Annual growth in building permits has already collapsed from 35% a year ago to only 3% at the end of last year. The malaise in residential fixed investment is soon set to drag non-residential investment lower too. Both sectors together account for almost 20% of GDP. GDP should continue to slow this year as the impact of higher yields filters through the economy, bringing into question whether Fed rate hike and balance-sheet contraction expectations will be met. Of course, this is all according to plan: as we said more than a month ago in another view that roundly mocked at the time and has now become consensus, the Fed is now desperate to start a "soft" recession (in order to create the demand destruction needed to send commodity prices lower) but without also crashing the market. Fed desperate to figure out how to start a soft recession without also crashing the market — zerohedge (@zerohedge) February 10, 2022 Alas, as recent events in the stock market have demonstrated vividly, the Fed is finding it impossible to have a "gentle" recession, one which does not crash stocks as well. The question is what the Fed will do then. Tyler Durden Mon, 03/14/2022 - 14:53.....»»

Category: blogSource: zerohedgeMar 14th, 2022

Futures Surge After Powell-Driven Rout Proves To Be "Transitory"

Futures Surge After Powell-Driven Rout Proves To Be "Transitory" Heading into yesterday's painful close to one of the ugliest months since March 2020, which saw a huge forced liquidation rebalance with more than $8 billion in Market on Close orders, we said that while we are seeing "forced selling dump into the close today" this would be followed by "forced Dec 1 buying frontrunning after the close." Forced selling dump into the close today. Forced Dec 1 buying frontrunning after the close — zerohedge (@zerohedge) November 30, 2021 And just as expected, despite yesterday's dramatic hawkish pivot by Powell, who said it was time to retire the word transitory in describing the inflation outlook (the same word the Fed used hundreds of times earlier in 2021 sparking relentless mockery from this website for being clueless as usual) while also saying the U.S. central bank would consider bringing forward plans for tapering its bond buying program at its next meeting in two weeks, the frontrunning of new monthly inflows is in full force with S&P futures rising over 1.2%, Nasdaq futures up 1.3%, and Dow futures up 0.9%, recovering almost all of Tuesday’s decline. The seemingly 'hawkish' comments served as a double whammy for markets, which were already nervous about the spread of the Omicron coronavirus variant and its potential to hinder a global economic recovery. "At this point, COVID does not appear to be the biggest long-term Street fear, although it could have the largest impact if the new (or next) variant turns out to be worse than expected," Howard Silverblatt, senior index analyst for S&P and Dow Jones indices, said in a note. "That honor goes to inflation, which continues to be fed by supply shortages, labor costs, worker shortages, as well as consumers, who have not pulled back." However, new month fund flows proved too powerful to sustain yesterday's month-end dump and with futures rising - and panic receding - safe havens were sold and the 10-year Treasury yield jumped almost 6bps, approaching 1.50%. The gap between yields on 5-year and 30-year Treasuries was around the narrowest since March last year. Crude oil and commodity-linked currencies rebounded. Gold remained just under $1,800 and bitcoin traded just over $57,000. There was more good news on the covid front with a WHO official saying some of the early indications are that most Omicron cases are mild with no severe cases. Separately Merck gained 3.8% in premarket trade after a panel of advisers to the U.S. Food and Drug Administration narrowly voted to recommend the agency authorize the drugmaker's antiviral pill to treat COVID-19. Travel and leisure stocks also rebounded, with cruiseliners Norwegian, Carnival, Royal Caribbean rising more than 2.5% each. Easing of covid fears also pushed airlines and travel stocks higher in premarket trading: Southwest +2.9%, Delta +2.5%, Spirit +2.3%, American +2.2%, United +1.9%, JetBlue +1.3%. Vaccine makers traded modestly lower in pre-market trading after soaring in recent days as Wall Street weighs the widening spread of the omicron variant. Merck & Co. bucked the trend after its Covid-19 pill narrowly gained a key recommendation from advisers to U.S. regulators. Moderna slips 2.1%, BioNTech dips 1.3% and Pfizer is down 0.2%. Elsewhere, Occidental Petroleum led gains among the energy stocks, up 3.2% as oil prices climbed over 4% ahead of OPEC's meeting. Shares of major Wall Street lenders also moved higher after steep falls on Tuesday. Here are some of the other biggest U.S. movers today: Salesforce (CRM US) drops 5.9% in premarket trading after results and guidance missed estimates, with analysts highlighting currency-related headwinds and plateauing growth at the MuleSoft integration software business. Hewlett Packard Enterprise (HPE US) falls 1.3% in premarket after the computer equipment maker’s quarterly results showed the impact of the global supply chain crunch. Analysts noted solid order trends. Merck (MRK US) shares rise 5.8% in premarket after the company’s Covid-19 pill narrowly wins backing from FDA advisers, which analysts say is a sign of progress despite lingering challenges. Chinese electric vehicle makers were higher in premarket, leading U.S. peers up, after Nio, Li and XPeng reported strong deliveries for November; Nio (NIO US) +4%, Li (LI US ) +6%, XPeng (XPEV US) +4.3%. Ardelyx (ARDX US) shares gain as much as 34% in premarket, extending the biotech’s bounce after announcing plans to launch its irritable bowel syndrome treatment Ibsrela in the second quarter. CTI BioPharma (CTIC US) shares sink 18% in premarket after the company said the FDA extended the review period for a new drug application for pacritinib. Allbirds (BIRD US) fell 7.5% postmarket after the low end of the shoe retailer’s 2021 revenue forecast missed the average analyst estimate. Zscaler (ZS US) posted “yet another impressive quarter,” according to BMO. Several analysts increased their price targets for the security software company. Shares rose 4.6% in postmarket. Ambarella (AMBA US) rose 14% in postmarket after forecasting revenue for the fourth quarter that beat the average analyst estimate. Emcore (EMKR US) fell 9% postmarket after the aerospace and communications supplier reported fiscal fourth-quarter Ebitda that missed the average analyst estimate. Box (BOX US) shares gained as much as 10% in postmarket trading after the cloud company raised its revenue forecast for the full year. Meanwhile, the omicron variant continues to spread around the globe, though symptoms so far appear to be relatively mild. The Biden administration plans to tighten rules on travel to the U.S., and Japan said it would bar foreign residents returning from 10 southern African nations. As Bloomberg notes, volatility is buffeting markets as investors scrutinize whether the pandemic recovery can weather diminishing monetary policy support and potential risks from the omicron virus variant. Global manufacturing activity stabilized last month, purchasing managers’ gauges showed Wednesday, and while central banks are scaling back ultra-loose settings, financial conditions remain favorable in key economies. “The reality is hotter inflation coupled with a strong economic backdrop could end the Fed’s bond buying program as early as the first quarter of next year,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said in emailed comments. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.” Looking ahead, Powell is back on the Hill for day 2, and is due to testify before a House Financial Services Committee hybrid hearing at 10 a.m. ET. On the economic data front, November readings on U.S. private payrolls and manufacturing activity will be closely watched later in the day to gauge the health of the American economy. Investors are also awaiting the Fed's latest "Beige Book" due at 2:00 p.m. ET. On the economic data front, November readings on U.S. private payrolls and manufacturing activity will be closely watched later in the day to gauge the health of the American economy. European equities soared more than 1.2%, with travel stocks and carmakers leading broad-based gain in the Stoxx Europe 600 index, all but wiping out Tuesday’s decline that capped only the third monthly loss for the benchmark this year.  Travel, miners and autos are the strongest sectors. Here are some of the biggest European movers today: Proximus shares rise as much as 6.5% after the company said it’s started preliminary talks regarding a potential deal involving TeleSign, with a SPAC merger among options under consideration. Dr. Martens gains as much as 4.6% to the highest since Sept. 8 after being upgraded to overweight from equal- weight at Barclays, which says the stock’s de-rating is overdone. Husqvarna advances as much as 5.3% after the company upgraded financial targets ahead of its capital markets day, including raising the profit margin target to 13% from 10%. Wizz Air, Lufthansa and other travel shares were among the biggest gainers as the sector rebounded after Tuesday’s losses; at a conference Wizz Air’s CEO reiterated expansion plans. Wizz Air gains as much as 7.5%, Lufthansa as much as 6.8% Elis, Accor and other stocks in the French travel and hospitality sector also rise after the country’s government pledged to support an industry that’s starting to get hit by the latest Covid-19 wave. Pendragon climbs as much as 6.5% after the car dealer boosted its outlook after the company said a supply crunch in the new vehicle market wasn’t as bad as it had anticipated. UniCredit rises as much as 3.6%, outperforming the Stoxx 600 Banks Index, after Deutsche Bank added the stock to its “top picks” list alongside UBS, and Bank of Ireland, Erste, Lloyds and Societe Generale. Earlier in the session, Asian stocks also soared, snapping a three-day losing streak, led by energy and technology shares, as traders assessed the potential impact from the omicron coronavirus variant and U.S. Federal Reserve Chair Jerome Powell’s hawkish pivot. The MSCI Asia Pacific Index rose as much as 1.3% Wednesday. South Korea led regional gains after reporting strong export figures, which bolsters growth prospects despite record domestic Covid-19 cases. Hong Kong stocks also bounced back after falling Tuesday to their lowest level since September 2020. Asia’s stock benchmark rebounded from a one-year low, though sentiment remained clouded by lingering concerns on the omicron strain and Fed’s potentially faster tapering pace. Powell earlier hinted that the U.S. central bank will accelerate its asset purchases at its meeting later this month.  “A faster taper in the U.S. is still dependent on omicron not causing a big setback to the outlook in the next few weeks,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital, adding that he expects the Fed’s policy rate “will still be low through next year, which should still enable good global growth which will benefit Asia.” Chinese equities edged up after the latest economic data showed manufacturing activity remained at relatively weak levels in November, missing economists’ expectations. Earlier, Chinese Vice Premier Liu He said he’s fully confident in the nation’s economic growth in 2022 Japanese stocks rose, overcoming early volatility as traders parsed hawkish comments from Federal Reserve Chair Jerome Powell. Electronics and auto makers were the biggest boosts to the Topix, which closed 0.4% higher after swinging between a gain of 0.9% and loss of 0.7% in the morning session. Daikin and Fanuc were the largest contributors to a 0.4% rise in the Nikkei 225, which similarly fluctuated. The Topix had dropped 4.8% over the previous three sessions due to concerns over the omicron virus variant. The benchmark fell 3.6% in November, its worst month since July 2020. “The market’s tolerance to risk is quite low at the moment, with people responding in a big way to the smallest bit of negative news,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo. “But the decline in Japanese equities was far worse than those of other developed markets, so today’s market may find a bit of calm.” U.S. shares tumbled Tuesday after Powell said officials should weigh removing pandemic support at a faster pace and retired the word “transitory” to describe stubbornly high inflation In rates, bonds trade heavy, as yield curves bear-flatten. Treasuries extended declines with belly of the curve cheapening vs wings as traders continue to price in additional rate-hike premium over the next two years. Treasury yields were cheaper by up to 5bp across belly of the curve, cheapening 2s5s30s spread by ~5.5bp on the day; 10-year yields around 1.48%, cheaper by ~4bp, while gilts lag by additional 2bp in the sector. The short-end of the gilt curve markedly underperforms bunds and Treasuries with 2y yields rising ~11bps near 0.568%. Peripheral spreads widen with belly of the Italian curve lagging. The flattening Treasury yield curve “doesn’t suggest imminent doom for the equity market in and of itself,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said on Bloomberg Television. “Alarm bells go off in terms of recession” when the curve gets closer to inverting, she said. In FX, the Turkish lira had a wild session, offered in early London trade before fading. USD/TRY dropped sharply to lows of 12.4267 on reports of central bank FX intervention due to “unhealthy price formations” before, once again, fading TRY strength after comments from Erdogan. The rest of G-10 FX is choppy; commodity currencies retain Asia’s bid tone, havens are sold: the Bloomberg Dollar Spot Index inched lower, as the greenback traded mixed versus its Group-of-10 peers. The euro moved in a narrow range and Bund yields followed U.S. yields higher. The pound advanced as risk sentiment stabilized with focus still on news about the omicron variant. The U.K. 10-, 30-year curve flirted with inversion as gilts flattened, with money markets betting on 10bps of BOE tightening this month for the first time since Friday. The Australian and New Zealand dollars advanced as rising commodity prices fuel demand from exporters and leveraged funds. Better-than-expected growth data also aided the Aussie, with GDP expanding by 3.9% in the third quarter from a year earlier, beating the 3% estimated by economists. Austrian lawmakers extended a nationwide lockdown for a second 10-day period to suppress the latest wave of coronavirus infections before the Christmas holiday period.  The yen declined by the most among the Group-of-10 currencies as Powell’s comments renewed focus on yield differentials. 10-year yields rose ahead of Thursday’s debt auction In commodities, crude futures rally. WTI adds over 4% to trade on a $69-handle, Brent recovers near $72.40 after Goldman said overnight that oil had gotten extremely oversold. Spot gold fades a pop higher to trade near $1,785/oz. Base metals trade well with LME copper and nickel outperforming. Looking at the day ahead, once again we’ll have Fed Chair Powell and Treasury Secretary Yellen appearing, this time before the House Financial Services Committee. In addition to that, the Fed will be releasing their Beige Book, and BoE Governor Bailey is also speaking. On the data front, the main release will be the manufacturing PMIs from around the world, but there’s also the ADP’s report of private payrolls for November in the US, the ISM manufacturing reading in the US as well for November, and German retail sales for October. Market Snapshot S&P 500 futures up 1.2% to 4,620.75 STOXX Europe 600 up 1.0% to 467.58 MXAP up 0.9% to 191.52 MXAPJ up 1.1% to 626.09 Nikkei up 0.4% to 27,935.62 Topix up 0.4% to 1,936.74 Hang Seng Index up 0.8% to 23,658.92 Shanghai Composite up 0.4% to 3,576.89 Sensex up 1.0% to 57,656.51 Australia S&P/ASX 200 down 0.3% to 7,235.85 Kospi up 2.1% to 2,899.72 Brent Futures up 4.2% to $72.15/bbl Gold spot up 0.2% to $1,778.93 U.S. Dollar Index little changed at 95.98 German 10Y yield little changed at -0.31% Euro down 0.1% to $1.1326 Top Overnight News from Bloomberg U.S. Secretary of State Antony Blinken will meet Russian Foreign Minister Sergei Lavrov Thursday, the first direct contact between officials of the two countries in weeks as tensions grow amid western fears Russia may be planning to invade Ukraine Oil rebounded from a sharp drop on speculation that recent deep losses were excessive and OPEC+ may on Thursday decide to pause hikes in production, with the abrupt reversal fanning already- elevated volatility The EU is set to recommend that member states review essential travel restrictions on a daily basis in the wake of the omicron variant, according to a draft EU document seen by Bloomberg China is planning to ban companies from going public on foreign stock markets through variable interest entities, according to people familiar with the matter, closing a loophole long used by the country’s technology industry to raise capital from overseas investors Manufacturing activity in Asia outside China stabilized last month amid easing lockdown and border restrictions, setting the sector on course to face a possible new challenge from the omicron variant of the coronavirus Germany urgently needs stricter measures to check a surge in Covid-19 infections and protect hospitals from a “particularly dangerous situation,” according to the head of the country’s DIVI intensive-care medicine lobby. A more detailed breakdown of global markets courtesy of Newsquawk Asian equity markets traded mostly positive as regional bourses atoned for the prior day’s losses that were triggered by Omicron concerns, but with some of the momentum tempered by recent comments from Fed Chair Powell and mixed data releases including the miss on Chinese Caixin Manufacturing PMI. ASX 200 (-0.3%) was led lower by underperformance in consumer stocks and with utilities also pressured as reports noted that Shell and Telstra’s entrance in the domestic electricity market is set to ignite fierce competition and force existing players to overhaul their operations, although the losses in the index were cushioned following the latest GDP data which showed a narrower than feared quarterly contraction in Australia’s economy. Nikkei 225 (+0.4%) was on the mend after yesterday’s sell-off with the index helped by favourable currency flows and following a jump in company profits for Q3, while the KOSPI (+2.1%) was also boosted by strong trade data. Hang Seng (+0.8%) and Shanghai Comp. (+0.4%) were somewhat varied as a tech resurgence in Hong Kong overcompensated for the continued weakness in casinos stocks amid ongoing SunCity woes which closed all VIP gaming rooms in Macau after its Chairman's recent arrest, while the mood in the mainland was more reserved after a PBoC liquidity drain and disappointing Chinese Caixin Manufacturing PMI data which fell short of estimates and slipped back into contraction territory. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and after the pullback in global fixed income peers in the aftermath of Fed Chair Powell’s hawkish comments, while a lack of BoJ purchases further contributed to the subdued demand for JGBs. Top Asian News Asia Stocks Bounce Back from One-Year Low Despite Looming Risks Gold Swings on Omicron’s Widening Spread, Inflation Worries Shell Sees Hedge Funds Moving to LNG, Supporting Higher Prices Abe Warns China Invading Taiwan Would Be ‘Economic Suicide’ Bourses in Europe are firmer across the board (Euro Stoxx 50 +1.6%; Stoxx 600 +1.1%) as the positive APAC sentiment reverberated into European markets. US equity futures are also on the front foot with the cyclical RTY (+2.0%) outpacing its peers: ES (+1.2%), NQ (+1.5%), YM (+0.8%). COVID remains a central theme for the time being as the Omicron variant is observed for any effects of concern – which thus far have not been reported. Analysts at UBS expect market focus to shift away from the variant and more towards growth and earnings. The analysts expect Omicron to fuse into the ongoing Delta outbreak that economies have already been tackling. Under this scenario, the desk expects some of the more cyclical markets and sectors to outperform. The desk also flags two tails risks, including an evasive variant and central bank tightening – particularly after Fed chair Powell’s commentary yesterday. Meanwhile, BofA looks for an over-10% fall in European stocks next year. Sticking with macro updates, the OECD, in their latest economic outlook, cut US, China, Eurozone growth forecasts for 2021 and 2022, with Omicron cited as a factor. Back to trade, broad-based gains are seen across European cash markets. Sectors hold a clear cyclical bias which consists of Travel & Leisure, Basic Resources, Autos, Retail and Oil & Gas as the top performers – with the former bolstered by the seemingly low appetite for coordination on restrictions and measures at an EU level – Deutsche Lufthansa (+6%) and IAG (+5.1%) now reside at the top of the Stoxx 600. The other side of the spectrum sees the defensive sectors – with Healthcare, Household Goods, Food & Beverages as the straddlers. In terms of induvial movers, German-listed Adler Group (+22%) following a divestment, whilst Blue Prism (+1.7%) is firmer after SS&C raised its offer for the Co. Top European News Wizz Says Travelers Are Booking at Shorter and Shorter Notice Turkey Central Bank Intervenes in FX Markets to Stabilize Lira Gold Swings on Omicron’s Widening Spread, Inflation Worries Former ABG Sundal Collier Partner Starts Advisory Firm In FX, the Dollar remains mixed against majors, but well off highs prompted by Fed chair Powell ditching transitory from the list of adjectives used to describe inflation and flagging that a faster pace of tapering will be on the agenda at December’s FOMC. However, the index is keeping tabs on the 96.000 handle and has retrenched into a tighter 95.774-96.138 range, for the time being, as trade remains very choppy and volatility elevated awaiting clearer medical data and analysis on Omicron to gauge its impact compared to the Delta strain and earlier COVID-19 variants. In the interim, US macro fundamentals might have some bearing, but the bar is high before NFP on Friday unless ADP or ISM really deviate from consensus or outside the forecast range. Instead, Fed chair Powell part II may be more pivotal if he opts to manage hawkish market expectations, while the Beige Book prepared for next month’s policy meeting could also add some additional insight. NZD/AUD/CAD/GBP - Broad risk sentiment continues to swing from side to side, and currently back in favour of the high beta, commodity and cyclical types, so the Kiwi has bounced firmly from worst levels on Tuesday ahead of NZ terms of trade, the Aussie has pared a chunk of its declines with some assistance from a smaller than anticipated GDP contraction and the Loonie is licking wounds alongside WTI in advance of Canadian building permits and Markit’s manufacturing PMI. Similarly, Sterling has regained some poise irrespective of relatively dovish remarks from BoE’s Mann and a slender downward revision to the final UK manufacturing PMI. Nzd/Usd is firmly back above 0.6800, Aud/Usd close to 0.7150 again, Usd/Cad straddling 1.2750 and Cable hovering on the 1.3300 handle compared to circa 0.6772, 0.7063, 1.2837 and 1.3195 respectively at various fairly adjacent stages yesterday. JPY/EUR/CHF - All undermined by the aforementioned latest upturn in risk appetite or less angst about coronavirus contagion, albeit to varying degrees, as the Yen retreats to retest support sub-113.50, Euro treads water above 1.1300 and Franc straddles 0.9200 after firmer than forecast Swiss CPI data vs a dip in the manufacturing PMI. In commodities, WTI and Brent front month futures are recovering following yesterday’s COVID and Powell-induced declines in the run-up to the OPEC meetings later today. The complex has also been underpinned by the reduced prospects of coordinated EU-wide restrictions, as per the abandonment of the COVID video conference between EU leaders. However, OPEC+ will take centre stage over the next couple of days, with a deluge of source reports likely as OPEC tests the waters. The case for OPEC+ to pause the planned monthly relaxation of output curbs by 400k BPD has been strengthening. There have been major supply and demand developments since the prior meeting. The recent emergence of the Omicron COVID variant and coordinated release of oil reserves have shifted the balance of expectations relative to earlier in the month (full Newsquawk preview available in the Research Suite). In terms of the schedule, the OPEC meeting is slated for 13:00GMT/08:00EST followed by the JTC meeting at 15:00GMT/10:00EST, whilst tomorrow sees the JMMC meeting at 12:00GMT/07:00EST; OPEC+ meeting at 13:00GMT/08:00EST. WTI Jan has reclaimed a USD 69/bbl handle (vs USD 66.20/bbl low) while Brent Feb hovers around USD 72.50/bbl (vs low USD 69.38/bbl) at the time of writing. Elsewhere, spot gold and silver trade with modest gains and largely in tandem with the Buck. Spot gold failed to sustain gains above the cluster of DMAs under USD 1,800/oz (100 DMA at USD 1,792/oz, 200 DMA at USD 1,791/oz, and 50 DMA at USD 1,790/oz) – trader should be aware of the potential for a technical Golden Cross (50 DMA > 200 DMA). Turning to base metals, copper is supported by the overall risk appetite, with the LME contract back above USD 9,500/t. Overnight, Chinese coking coal and coke futures rose over 5% apiece, with traders citing disrupted supply from Mongolia amid the COVID outbreak in the region. US Event Calendar 7am: Nov. MBA Mortgage Applications, prior 1.8% 8:15am: Nov. ADP Employment Change, est. 525,000, prior 571,000 9:45am: Nov. Markit US Manufacturing PMI, est. 59.1, prior 59.1 10am: Oct. Construction Spending MoM, est. 0.4%, prior -0.5% 10am: Nov. ISM Manufacturing, est. 61.2, prior 60.8 2pm: U.S. Federal Reserve Releases Beige Book Nov. Wards Total Vehicle Sales, est. 13.4m, prior 13m Central Banks 10am: Powell, Yellen Testify Before House Panel on CARES Act Relief DB's Jim Reid concludes the overnight wrap If you’re under 10 and reading this there’s a spoiler alert today in this first para so please skip beyond and onto the second. Yes my heart broke a little last night as my little 6-year old Maisie said to me at bedtime that “Santa isn’t real is he Daddy?”. I lied (I think it’s a lie) and said yes he was. I made up an elaborate story about how when we renovated our 100 year old house we deliberately kept the chimney purely to let Santa come down it once a year. Otherwise why would we have kept it? She then asked what about her friend who lives in a flat? I tried to bluff my way through it but maybe my answer sounded a bit like my answers as to what will happen with Omicron. I’ll test both out on clients later to see which is more convincing. Before we get to the latest on the virus, given it’s the start of the month, we’ll shortly be publishing our November performance review looking at how different assets fared over the month just gone and YTD. It arrived late on but Omicron was obviously the dominant story and led to some of the biggest swings of the year so far. It meant that oil (which is still the top performer on a YTD basis) was the worst performer in our monthly sample, with WTI and Brent seeing their worst monthly performances since the initial wave of market turmoil over Covid back in March 2020. And at the other end, sovereign bonds outperformed in November as Omicron’s emergence saw investors push back the likelihood of imminent rate hikes from central banks. So what was shaping up to be a good month for risk and a bad one for bonds flipped around in injury time. Watch out for the report soon from Henry. Back to yesterday now, and frankly the main takeaway was that markets were desperate for any piece of news they could get their hands on about the Omicron variant, particularly given the lack of proper hard data at the moment. The morning started with a sharp selloff as we discussed at the top yesterday, as some of the more optimistic noises from Monday were outweighed by that FT interview, whereby Moderna’s chief executive had said that the existing vaccines wouldn’t be as effective against the new variant. Then we had some further negative news from Regeneron, who said that analysis and modelling of the Omicron mutations indicated that its antibody drug may not be as effective, but that they were doing further analysis to confirm this. However, we later got some comments from a University of Oxford spokesperson, who said that there wasn’t any evidence so far that vaccinations wouldn’t provide high levels of protection against severe disease, which coincided with a shift in sentiment early in the European afternoon as equities begun to pare back their losses. The CEO of BioNTech and the Israeli health minister expressed similar sentiments, noting that vaccines were still likely to protect against severe disease even among those infected by Omicron, joining other officials encouraging people to get vaccinated or get booster shots. Another reassuring sign came in an update from the EU’s ECDC yesterday, who said that all of the 44 confirmed cases where information was available on severity “were either asymptomatic or had mild symptoms.” After the close, the FDA endorsed Merck’s antiviral Covid pill. While it’s not clear how the pill interacts with Omicron, the proliferation of more Covid treatments is still good news as we head into another winter. The other big piece of news came from Fed Chair Powell’s testimony to the Senate Banking Committee, where the main headline was his tapering comment that “It is appropriate to consider wrapping up a few months sooner.” So that would indicate an acceleration in the pace, which would be consistent with the view from our US economists that we’ll see a doubling in the pace of reductions at the December meeting that’s only two weeks from today. The Fed Chair made a forceful case for a faster taper despite lingering Omicron uncertainties, noting inflation is likely to stay elevated, the labour market has improved without a commensurate increase in labour supply (those sidelined because of Covid are likely to stay there), spending has remained strong, and that tapering was a removal of accommodation (which the economy doesn’t need more of given the first three points). Powell took pains to stress the risk of higher inflation, going so far as to ‘retire’ the use of the term ‘transitory’ when describing the current inflation outlook. So team transitory have seemingly had the pitch taken away from them mid match. The Chair left an exit clause that this outlook would be informed by incoming inflation, employment, and Omicron data before the December FOMC meeting. A faster taper ostensibly opens the door to earlier rate hikes and Powell’s comment led to a sharp move higher in shorter-dated Treasury yields, with the 2yr yield up +8.1bps on the day, having actually been more than -4bps lower when Powell began speaking. They were as low as 0.44% then and got as high as 0.57% before closing at 0.56%. 2yr yields have taken another leg higher overnight, increasing +2.5bps to 0.592%. Long-end yields moved lower though and failed to back up the early day moves even after Powell, leading to a major flattening in the yield curve on the back of those remarks, with the 2s10s down -13.7bps to 87.3bps, which is its flattest level since early January. Overnight 10yr yields are back up +3bps but the curve is only a touch steeper. My 2 cents on the yield curve are that the 2s10s continues to be my favourite US recession indicator. It’s worked over more cycles through history than any other. No recession since the early 1950s has occurred without the 2s10s inverting. But it takes on average 12-18 months from inversion to recession. The shortest was the covid recession at around 7 months which clearly doesn’t count but I think we were very late cycle in early 2020 and the probability of recession in the not too distant future was quite high but we will never know.The shortest outside of that was around 9 months. So with the curve still at c.+90bps we are moving in a more worrying direction but I would still say 2023-24 is the very earliest a recession is likely to occur (outside of a unexpected shock) and we’ll need a rapid flattening in 22 to encourage that. History also suggests markets tend to ignore the YC until it’s too late. So I wouldn’t base my market views in 22 on the yield curve and recession signal yet. However its something to look at as the Fed seemingly embarks on a tightening cycle in the months ahead. Onto markets and those remarks from Powell (along with the additional earlier pessimism about Omicron) proved incredibly unhelpful for equities yesterday, with the S&P 500 (-1.90%) giving up the previous day’s gains to close at its lowest level in over a month. It’s hard to overstate how broad-based this decline was, as just 7 companies in the entire S&P moved higher yesterday, which is the lowest number of the entire year so far and the lowest since June 11th, 2020, when 1 company ended in the green. Over in Europe it was much the same story, although they were relatively less affected by Powell’s remarks, and the STOXX 600 (-0.92%) moved lower on the day as well. Overnight in Asia, stocks are trading higher though with the KOSPI (+2.02%), Hang Seng (+1.40%), the Nikkei (+0.37%), Shanghai Composite (+0.11%) and CSI (+0.09%) all in the green. Australia’s Q3 GDP contracted (-1.9% qoq) less than -2.7% consensus while India’s Q3 GDP grew at a firm +8.4% year-on-year beating the +8.3% consensus. In China the Caixin Manufacturing PMI for November came in at 49.9 against a 50.6 consensus. Futures markets are indicating a positive start to markets in US & Europe with the S&P 500 (+0.73%) and DAX (+0.44%) trading higher again. Back in Europe, there was a significant inflation story amidst the other headlines above, since Euro Area inflation rose to its highest level since the creation of the single currency, with the flash estimate for November up to +4.9% (vs. +4.5% expected). That exceeded every economist’s estimate on Bloomberg, and core inflation also surpassed expectations at +2.6% (vs. +2.3% expected), again surpassing the all-time high since the single currency began. That’s only going to add to the pressure on the ECB, and yesterday saw Germany’s incoming Chancellor Scholz say that “we have to do something” if inflation doesn’t ease. European sovereign bonds rallied in spite of the inflation reading, with those on 10yr bunds (-3.1bps), OATs (-3.5bps) and BTPs (-0.9bps) all moving lower. Peripheral spreads widened once again though, and the gap between Italian and German 10yr yields closed at its highest level in just over a year. Meanwhile governments continued to move towards further action as the Omicron variant spreads, and Greece said that vaccinations would be mandatory for everyone over 60 soon, with those refusing having to pay a monthly €100 fine. Separately in Germany, incoming Chancellor Scholz said that there would be a parliamentary vote on the question of compulsory vaccinations, saying to the Bild newspaper in an interview that “My recommendation is that we don’t do this as a government, because it’s an issue of conscience”. In terms of other data yesterday, German unemployment fell by -34k in November (vs. -25k expected). Separately, the November CPI readings from France at +3.4% (vs. +3.2% expected) and Italy at +4.0% (vs. +3.3% expected) surprised to the upside as well. In the US, however, the Conference Board’s consumer confidence measure in November fell to its lowest since February at 109.5 (vs. 110.9 expected), and the MNI Chicago PMI for November fell to 61.8 9vs. 67.0 expected). To the day ahead now, and once again we’ll have Fed Chair Powell and Treasury Secretary Yellen appearing, this time before the House Financial Services Committee. In addition to that, the Fed will be releasing their Beige Book, and BoE Governor Bailey is also speaking. On the data front, the main release will be the manufacturing PMIs from around the world, but there’s also the ADP’s report of private payrolls for November in the US, the ISM manufacturing reading in the US as well for November, and German retail sales for October. Tyler Durden Wed, 12/01/2021 - 07:47.....»»

Category: blogSource: zerohedgeDec 1st, 2021

Year-End Outlook: Labor Could Spark ‘Transformational’ Changes

Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022. Dolly Parton might still be plugging away at a nine to five, and BTO might still catch the 8:15 train into the city, but for most […] The post Year-End Outlook: Labor Could Spark ‘Transformational’ Changes appeared first on RISMedia. Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022. Dolly Parton might still be plugging away at a nine to five, and BTO might still catch the 8:15 train into the city, but for most of the country, the traditional machinations of labor have changed. Besides the well-documented shifts to remote in many industries, rising wages and a rapidly evolving outlook on what work fundamentally should look like appears to be altering the entire labor economy as people quit their jobs in droves and companies scramble to accommodate new priorities and philosophies. Many pundits have sought to quickly or succinctly sum up all these changes, or attribute new attitudes to a single event or ideology, but the reality is that the future of labor—both short- and long-term—remains deeply uncertain, and the causes and effects of a shifting labor economy have not been parsed out. Despite the lack of answers to these fundamental questions, economists and experts that spoke to RISMedia say that there is still plenty that stakeholders—especially in the real estate industry—need to keep an eye on. Jake Vigdor, an employment and education economist currently working for the University of Washington, says shifts caused by the new labor market are likely to manifest both in philosophical as well as geographic shifts. “There was this period of time last year when people were saying, ‘San Francisco is going to die,’ or ‘New York City is going to die,’’’ he says. “I don’t think that’s really the case. If you’re thinking about where the transactions are going to be growing over the next year or so, that’s going to be hard to forecast.” Work-from-home trends and labor shifts have indicated a broad geographic diffusal of population, specifically high-earning and younger families, Vigdor adds. Though it is far too early to say for certain exactly how and to what extent these changes will take hold, likely they will affect more immediate and lasting change than other more widely watched metrics. In October, unemployment overall fell from 4.8% to 4.6%, and the economy has steadily added more jobs through the last few months. But this progress belies some deeper issues that are not going away anytime soon. Greg Reed is a labor economist specializing in real estate and urban land at the University of Wisconsin in Madison. He says the big job numbers often touted by media outlets and the federal government are less important than many other underlying factors. Barriers that are preventing people from re-entering the workforce—unaffordable or unavailable child care, wages, health care and discrimination—threaten both short-term recovery and the overall stability of the economy. “I’m honestly more concerned down the road for those people who are really looking for jobs and really wanted to work and had to work, but because of COVID or for whatever reason—ageism, sexism, you just add what ‘ism’ to it—weren’t able to find jobs during COVID,” Reed says. And they may still need to find something. What’s going to happen to them longer term?” “There’s some disruption here that’s going to have some structural impact,” he adds. The sector that most immediately affects real estate, at least right now, is the home construction industry. A new report from the Home Builders Institute (HBI) estimated that the country needs to add 2.2 million more jobs between now and 2024 to keep up with demand, and currently is looking at a deficit of 300,000 to 400,000 laborers. Ed Brady is the CEO of HBI, and he warns that this worker shortage both preceded and will likely persist past the broader labor crunch. “I think it‘s been at kind of a crisis level for a while, pre-pandemic and post-pandemic, and even during the pandemic—as you know we remained essential, and so building and developing were still moving forward,” he says. “We’re losing a lot more than we’re bringing in.” The Next 12 Months Policy changes are certain to have broad and disparate impacts on the job market. Many companies have yet to set long-term or permanent work-from-home rules, while the federal government has the chance to impact jobs through immigration policy, vaccine mandates or through a stalled federal bill that could begin addressing child care shortages and adding infrastructure- or climate-focused jobs. Regardless of the progress on these things in Washington, Vigdor says he still sees relative strength in the labor market’s recovery, with expectations that there is no immediate danger of a collapse or recession. “Our risk of heading into some sort of recession with mass unemployment is pretty low right now,” he says. But the most optimistic projections, looking at a return to pre-pandemic levels and modes, is much less realistic according to Vigdor, as American workers have indicated they are not willing to accept the old ways of doing things and recovery efforts still have a long way to go. “The economy over the next year or so—it will be kind of like cleaning up your house after a big party,” he says. “The place is a giant mess, and you look at it and you say, ‘Oh man.’” “Eventually you’ll get it all cleaned up, but…it could take a year or more,” he adds. “All of this stuff will eventually get worked out, but it’s not going to be quick.” There are also more fundamental issues, many of which preceded the pandemic, which will hamper a return to goals set by the Fed or other metrics of a healthy economy. These include everything from a lack of child care to health care costs to immigration restrictions. “We still have a lot of parents who are having trouble getting child care,” Vigdor says. “And another one is immigration…just talking about people who have visas, legal immigrants to the United States—that’s hundreds of thousands of new workers every year in an ordinary year— and that has basically ground to a halt.” A lack of incoming refugees, who are essential workers in many sectors, Vigdor says, is also styming economic growth and contributing to labor issues. Immigration affects every job sector, he adds, from the highest paying tech jobs all the way down to farm work. Many problems have also disproportionately affected people of color and women, with unemployment for Black and Hispanic workers staying stagnant in the most recent job report, even as overall unemployment fell. According to Reed, these issues will specifically dampen the real estate market in ways that go beyond finding construction workers to build houses. Commercial projects will stall if companies cannot find people to clean or maintain the property, appliances for new homes will sit in warehouses with no one to deliver them and apartment complexes will halt expansions if they don’t have staff to serve tenants or provide other on-site services. “It just seems like it’s permeating a lot, a lot of components of life,” Reed reflects. “It throws the sequencing off on so many different levels. And it just increases the uncertainty, and no one likes uncertainty.” Vigdor also worries that this labor shortage is unique in that it has affected nearly every region and sector equally—something that is rare historically in the U.S. He also points out that removing supplemental unemployment benefits and returning students to school full time did almost nothing to alleviate the labor shortage, indicating that the shortage is more than just a blip that will resolve itself as the virus fades, and will instead require more investment from companies and policymakers. Wages, Geography and Education To address a lack of carpenters, contractors, foremen, plumbers and electricians who build and rehab the homes necessary to keep the real estate industry growing, the answer must start with education, according to Brady. “Investing in schools, investing in pre-apprenticeship education…is one step. The country has to invest in that,” he says. “We can immediately change the dialogue in the secondary schools that you’re not ‘alternative’ if you’re going into the trades. It’s a first path, it’s not an alternative path, and we need to change that perception.” Trade jobs are especially hard to fill quickly, Brady argues, because experience is so important. A carpenter fresh out of school might take twice or three times as long to put up a house as one with 15 years of experience. Even if the country begins bringing in enough materials at cheap enough prices to begin alleviating the pressure of housing shortages, Brady claims the market will still be bottlenecked without enough skilled labor. “Productivity, I contend, as long as we’re not investing in younger people…I think it’s going to get worse before it gets better. That’s why we have to invest in it now for the future,” he says. The recent HBI report found that about half of construction workers in the trades make more than the median annual income in the country. But likely the industry will need to continue raising wages to attract more workers, according to Vigdor, as workers have more choices and negotiating power in their jobs than any time in recent memory. “Finding the carpentry crews and the masonry crews…if you’re having a tougher time finding that workforce, it’s going to lead to a slow down in new inventory,” he says. Reed says that every industry right now needs to understand that businesses will have to invest more in paying their workers if they want to compete—or even stay open. “There needs to be a wake-up call that in order to not only attract, but also retain that talent, they’re going to have to pay more,” he says. On the positive side for real estate, an increase in wages for lower-paying jobs could elevate some number of families, from renters just scraping by to prospective homebuyers. Federal programs offering down payment assistance and increasing affordability in housing could bolster that trend, according to Vigdor. “Some of these traditionally lower-incomes households, they’re getting bigger and steadier paychecks. That could lead to a situation where your markets for things like starter homes…there could be some renewed interest there,” he says. This scenario depends on how inflation continues—if wages and incomes can keep up with that metric—and also if the current levels of growth will continue long term (Reed says he believes they will). “I think the marketplace is speaking loud and clear, and I don’t see wages flipping notably from the higher levels they are now meeting,” Reed contends. “I can’t tell you the number of people who have said, ‘Why would I take a job at $10 an hour?’” A trend like this could create a relative explosion of buyers in the starter home price range, especially in marginal markets, Vigdor predicts. While coastal and expensive suburban areas would not see much change, various semi-rural areas outside bigger metros, and smaller cities spread across the Midwest and South, could quickly heat up in terms of real estate. At the same time, an entirely separate trend could also vastly alter the geography of work—and real estate. Big tech companies are currently diffusing their physical presence broadly across the country to match workers’ preferences, Vigdor says, which was something that started well before the pandemic. Distributing your workforce and offices as a tech company actually makes more sense than having huge central space-age complexes, he posits, and many companies had already begun spreading out before the pandemic. If Amazon, Facebook or Google end up bringing most workers back in person, Vigdor says the likely path will not be a return to the original offices but rather an expansion of satellite locations to dozens of places beyond large headquarters in Silicon Valley, New York or Austin, allowing people to live in disparate locations while still having a physical office somewhat accessible if need be. “It’s not going to be the thing that brings Gary, Indiana back or anything like that,” he cautions. “These relocations are people moving from really expensive places, to other somewhat cheaper but still desirable locations. So that’s going to affect the real estate markets.” These cities could be places in the Midwest or Sun Belt that have already seen tremendous growth during the pandemic, or they could affect areas that have yet to see that kind of attention, Vigdor says. This “decentralizing” is specifically unpredictable and will depend on the kind of amenities workers value, and where companies can find favorable conditions as far as taxes and other preferences. Other factors, like cities that have universities focused on specific cutting-edge research like robotics or AI will also draw some of these companies, Vigdor says. “The stuff is happening, and it’s been happening for quite some time. That will be an interesting thing to see,” he says. Again, what exactly the ramifications of these individual trends might be remains hard to predict. All of them have the potential to snowball and cause a domino effect that begins to alter behaviors in various other silos or sectors. But as labor appears to be evolving on a fundamental level post-pandemic, there is a distinct likelihood that the next several months will see some transformational changes in work. “Wall Street loves to see regular, consistent numbers on jobs reports,” Reed says. “I’m a little more concerned about those longer-term implications.” Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com. The post Year-End Outlook: Labor Could Spark ‘Transformational’ Changes appeared first on RISMedia......»»

Category: realestateSource: rismediaNov 10th, 2021

World Bank warns a global recession looks inevitable as food and energy prices spiral

"It's hard right now to see how we avoid a recession," World Bank's David Malpass said, given the Ukraine war's impact on prices of energy, food, and fertilizers. The ongoing conflict in Ukraine is likely to lead to a global recession, according to World Bank president David Malpass.Jacquelyn Martin/AP Food, energy, and fertilizer prices have soared since Russia invaded Ukraine. The commodities surge could lead to negative GDP growth, according to World Bank president David Malpass. "It's hard right now to see how we avoid a recession," Malpass said Wednesday. Russia's invasion of Ukraine has caused commodity prices to rise to such an extent that a global recession may now be inevitable, according to the president of the World Bank."As we look at the global GDP ... it's hard right now to see how we avoid a recession," David Malpass told the US Chamber of Commerce on Wednesday, according to a Reuters report."The idea of energy prices doubling is enough to trigger a recession by itself."Malpass pointed to the negative impact from soaring food, energy, and fertilizer prices, in particular. Crude oil prices have risen 20% to $111 a barrel since Russia attacked Ukraine in late February.Gas prices have soared so high in the US that demand for gasoline is dropping just as the summer driving season is about to begin. Earlier in the year, President Joe Biden warned that Americans will likely feel "Putin's price hike" at the gas pump for the foreseeable future.Ground beef, sunflower oil, and wheat have all surged in price, with analysts predicting a prolonged period of food inflation. Meanwhile, the Green Markets North America fertilizer price index — which tracks the costs of urea, potash, and diammonium phosphate — has risen 14% since Russia's assault on Ukraine began.Commodity price rises can lead to a recession because they help drive up inflation, which has hit 8.3% in the US and is running at similar 40-year highs in the UK. Central banks will tend to hike interest rates to curb inflation, which hits economic growth.Malpass noted that developing countries were most likely to be plunged into recession by soaring food, energy, and fertilizer prices."It's a very difficult, challenging outlook for advanced economies, but even worse for developing countries," he said.The World Bank cut its 2022 global growth forecast from 4.1% to 3.2% in April, citing the impact of Russia's invasion on gross domestic product."Countries are under severe financial stress," Malpass said at the time. "Sixty percent of low-income countries are already in debt distress or at high risk of it."Read more: Morgan Stanley's Mike Wilson says the S&P 500 will fall by another 14% into a bear market. He recommends buying these 15 stocks to weather the plunge and outperform peers when the bull returns.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 26th, 2022

Nomura Warns Market "Risks Disappointment" If It Expects A "Fed Pause"

Nomura Warns Market "Risks Disappointment" If It Expects A 'Fed Pause' Another missed economic data point this morning (durable goods) just added to the misery of the US Macro Surprise Index which has plunged red to its weakest since Oct 2021... Source: Bloomberg And as Nomura's Charlie McElligott notes, this accelerating "miss" is coinciding with a market which was already obsessing on “hard-landing” recession risk due to the shock FCI-tightening of the Fed’s still relatively nascent policy pivot. Look at the directional turn in categorized sectors of the economy since May 1 to today, particularly “Housing” and “Surveys” while also seeing a sign of a turn in “Labor”... Of the last 19 major US economic data releases tracked as inputs to Bloomberg’s US Economic Surprise Index dating back to May 13th, 13 have “missed” to the downside versus expectations... And it is this broad-based US weakening which is adding to the concern that added velocity to the “Recession / Contraction” fears this week, while Nomura's Economic Quadrant work risks a further “impulse” lower towards “Contraction” after this recent string of downside surprises... Source: Nomura And while we noted earlier that rate-hike expectations are fading modestly as stocks collapse... McElligott warns that the market risks being disappointed by believing that there is a “pause” option looming, where instead, he warns: "I think the Fed is simply biting-off 1 to 2 months of (weak) forward guidance at a time right now - again, remember also from Powell: '…there could be some pain involved in restoring price stability'..." So perversely, the Nomura strategist thinks that if anything, the Fed is seeing the results of their FCI tightening campaign through these broad measures “slowing” and could actually become incrementally “emboldened” to keep PUSHING on their hiking path until the see the “whites of the eyes” of sustainably lower inflation...as opposed to the notion of “pausing and hoping” for the inflation data to move lower. Additionally / separately, McElligott believes there is a substantial “head fake” risk into the Fed's preferred inflation measures this week (particularly Core PCE Deflator MoM on Friday), where even our "above Street" hawkish Fed outlook sees this April reading as a downside risk versus expectations... but we then see the next CPI read as an upside surprise potential (Mannheim picking back up, OER / Rent, Services broadening), which could absolutely whipsaw a Rates market where “shorts” are being stopped-out “real time”. Today’s Fed Minutes could be a big deal on messaging (as the Nomura Econ Team notes): The May FOMC meeting minutes are likely to indicate a robust discussion about how quickly, and how far, the Fed’s policy normalization should progress considering elevated inflation. While Chair Powell suggested at the press conference that the Committee was not “actively” considering 75bp hikes, his subsequent public comments suggest the Committee did not rule out such action.  In addition, more FOMC participants have signaled a greater likelihood of taking rates beyond a 2.25-2.50% range, suggesting an early consensus may be forming for more restrictive policy.  We will also be paying attention to comments related to forward guidance after Powell suggested any guidance beyond 60 or 90 days may not be useful. Back to the market, Nomura's cross-asset strategist notes that the grinding “stop-out” in hawkish / bearish UST and STIR trades (i.e. the Nomura QIS model estimating “short covering” of +$44.8B in G10 Bonds over the past 2w alone)... Net CTA Bond Exposure at 18.4%ile ...has further contributed to deteriorating market liquidity now, as funds have reduced to low grosses- / nets- in the trade... Gross CTA Bond Exposure at 4.5%ile since 2011 Simply put, the bond market is still significantly short, becoming drastically less liquid, and the growing perception that the (negative) economic response to Fed hawkishness is going to dictate an FOMC "downshift" is misplaced. Tyler Durden Wed, 05/25/2022 - 11:45.....»»

Category: blogSource: zerohedgeMay 25th, 2022

Snap Goes The Economy

Snap Goes The Economy Authored by Michael Lebowitz via RealInvestmentAdvice.com, “…the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month.” -Snap CEO Evan Spiegel First-quarter 2022 GDP fell by 1.4%. Many economists and Fed members foresaw the economy slowing from its robust 6.9% pace in the fourth quarter of 2021, but few predicted an economic contraction. Despite the poor start to the year, many economists are optimistic about second-quarter growth. The graph below shows the consensus estimate for second-quarter GDP growth is 3%, and the Atlanta Fed GDPNow model expects 2.4% growth. Following the first-quarter GDP, economist Ian Shepherdson, a frequent guest on CNBC, wrote, “the economy is not falling into a recession.” We beg to differ with Ian and the “consensus.” Recent warnings from corporate executives, like the one above, and rapidly declining regional manufacturing surveys and consumer sentiment make us wonder if a recession may have already started.   Snap Goes Advertising In our Daily Commentary, we led with the following paragraph about Snap, aka Snapchat:  Snap’s stock fell over 40% in trading on Tuesday. Concerning us is not necessarily Snap stockholders or even the welfare of the company, but comments from its CEO. Snap’s CEO writes in a letter to its employees: “…the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month.” Snap is a social media company deriving 99% of its revenue from advertising. Importantly, from a macro perspective, advertising expenditures tend to track well with the economy per the graph below. Snap is just one company, and typically we would not read much into the warning. However, his comments about a “further and faster” decline in the economy are significant because of their timeliness and that advertising expenditures are strongly linked to economic activity. it is becoming more evident by the day that many companies cannot entirely pass higher prices and expenses onto consumers. As such, they must cut or limit costs wherever possible. Advertising is an easy place to start, as Snap warns. Plunging Consumer Sentiment It is not just Snap and the advertising industry that troubles us. Personal consumption accounts for approximately two-thirds of economic activity. Accordingly, consumer sentiment, which is primarily a factor of the financial state of consumers, is an important indicator to follow. The University of Michigan Consumer Sentiment Survey is near its all-time lows of the last 60 years, as shown below. Within the report, they cite the following: “Buying conditions for durables reached its lowest reading since the question began appearing on the monthly surveys in 1978, again primarily due to high prices.” Et Tu Walmart? Walmart and Target CEOs offered critical warnings about rising costs and shifting consumer preferences in recent earnings calls. Per Walmart’s CEO Doug McMillon “Bottomline results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on the margin mix and operating costs than we expected.” “We like the fact that our inventory is up because so much of it is needed to be in stock on our side counters, but a 32% increase is higher than we want. We’ll work through most or all of the excess inventory over the next couple of quarters” Per Target’s CEO Brian Cornell “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” “…lower-than-expected sales of discretionary items from TVs to bicycles” “We never expected the kind of cost increases in freight and transportation that we’re seeing right now,” Consumers must spend more money on food, gas, and other necessities, leaving less money available for many discretionary products that stores like Target and Walmart sell. At the same time, wages, transportation, and inventory costs are rising rapidly. Retailers are increasingly struggling to pass on those higher costs to their customers. Equally important, as Doug McMillon mentions, inventories are increasing. The graph below shows that Walmart’s inventories are growing at the fastest rate since 2000. Burgeoning inventories will result in fewer new orders, ultimately weighing on the manufacturers of their goods. Gloomy Regional Manufacturing Surveys Economic data from the government is often delayed by at least a month and sometimes a quarter. However, timelier data sources can help us bridge the gap until government data is released.   The prominence of manufacturing in the United States is not what it used to be, but it still strongly correlates with the economy. Helping us assess the state of manufacturing is a series of regional and national surveys. Often the surveys are released within a week or two of when they were taken. Here are a few tidbits from our Daily Commentary on two such recent surveys. The May New York Fed Empire State Manufacturing Survey fell sharply into economic contraction levels at -11.6. Last month the Empire index stood at +24.6. The Philadelphia Fed Manufacturing Index, like the Empire State Index, came in well short of expectations. The index is now 2.6, down from 17.6 and expectations of 16.5. As shown below, the index still signals manufacturing expansion, but just barely so. The index fell to its lowest level in two years. On May 24, 2022, the Richmond Fed Survey shrunk into contractionary economic territory at -9, versus a forecast of 10 and previous reading of 14. Per the report: “Additionally, the local business conditions index continued its decline to -16 in May, from -10 in April. Firms are also less optimistic about conditions in the next six months as the index decreased to -13 in May from -1 in April.” Many manufacturing executives surveyed already feel the brunt of weakening economic activity and pushback from retailers. Stocks, Bonds, and the Fed Bond yields have fallen over the last two weeks. Bond investors and traders are breathing a sigh of relief as increasing recession odds should weigh on inflation. Weakening growth and lower inflation should result in lower bond yields. However, the risk is that inflation does not materially weaken with the economy, yet the Fed becomes less hawkish. If so, bond traders might rightfully fear the Fed is not fighting inflation enough. Stock investors would love to see the Fed relent from its hawkish rhetoric. However, unlike bond investors, they are not enthused about a possible recession. Pressure will likely remain on stock prices until the Fed relents. If they ease back on the hawkish rhetoric, we must wonder if stock investors will worry the Fed is being too easy on inflation. Unless there is a steep drop in inflation in the coming months, the Fed runs the risk of reacting to weak economic growth at the expense of taming inflation. Summary We would not rule out an announcement later this year by the National Bureau of Economic Research (NBER) backdating an official recession start date to May or even April.  [ZH: US Macro Surprise Index has plunged deep into the red in recent weeks, to its weakest since Oct 2021] Despite the data and commentary, many economists still discount the possibility of a recession. With one month left in the quarter, there is plenty of time for a resurgence in economic activity. That said, real-time data, including sentiment, corporate earnings, and manufacturing surveys, point to a rapidly slowing economy. While others wait for more official government economic data, we prefer to consider how quickly weakening economic activity and possibly lower inflation will change Fed rhetoric and ultimately affect our portfolios. Tyler Durden Wed, 05/25/2022 - 08:45.....»»

Category: blogSource: zerohedgeMay 25th, 2022

Rabobank: Michael Burry Warns That The Economy Looks Like A House Of Cards... And He Is Right

Rabobank: Michael Burry Warns That The Economy Looks Like A House Of Cards... And He Is Right By Michael Every of Rabobank House of Cards The data that got some heads, and markets, turning yesterday was US new home sales, which slumped 16.6% m-o-m and 26.9% y-o-y to a seasonally adjusted annual rate of 591,000 in April, the lowest level since April 2020. Economists had expected a figure of 748,000. Yes, this is always a very choppy series, but the drop was widespread: -5.9% in the Northeast, -15.1% in the Midwest, -19.8% in the South, and -13.8% in the West. That’s synchronicity which takes me back to a conversation I had with a Russian-American in mid-2006 when working at another bank, who explained why the US housing market was so vast that it was mathematically impossible for all homes to ever do anything --bad!-- at the same time, and so US mortgage-backed securities were the safest of investments. I kept up a rictus grin, as at that time I had been writing for years about a looming US housing crash, the Western replay of Asia’s 1997 crisis, which the traders around me were disinterested in hearing about: they had brought the guy in to explain how to profit from MBS sales. Relatedly, today has seen Michael Burry, of ‘The Big Short’ fame, tweet: ‘As I said about 2008, it is like watching a plane crash. It hurts, it is not fun, and I’m not smiling.’ Once again I agree with him. Of course, there was no sign of a property slump in the April sales report – quite the opposite. Prices soared yet again, reaching a median of $450,600 vs. $435,000 in the prior month. That is 3.6% m-o-m, which is 43% y-o-y if you annualized(!) That is a trend that has been going on for some time: according to First American's chief economist, in April 2021, 25% of new-home sales were priced below $300,000, but in April 2022, only 10% of new home sales were. This is part of ‘the strong economy’ the Fed keeps talking about, which is very 1997/2008 redux – as is their inability to understand what is actually going on (again). Let’s see what their minutes say much later today. However, we are certainly not seeing the same supply and price surge as before the last US housing crash. Inventory of homes for sale rose to 9 from 6.9 months on the back of that April sales fall, but there is not anywhere near the same scale of construction being seen as before the last crash. Lessons have been learned on that front, perhaps. Regardless, this does not mean good things for home buyers. Business Insider quotes a TD Bank survey of more than 1,000 hopeful buyers which found 29% were uncertain whether now was a good time to purchase a home, with affordability (67%) and down-payments (46%) the biggest concerns. Only 36% of this year's prospective homebuyers believed now was a good time to buy vs. 59% in 2021 and 68% in 2020. Likewise, the 30-year US fixed-rate mortgage jumped above 5% in April for the first time since February 2011, and averaged 5.25% in the week ending May 19. So, the logical economist forecast must be that prices have to come down - right? Except they can’t. There is massive supply-side inflation in almost everything involved in building a home, and outright limits on availability of some items regardless of price. That trend is not reversing any time soon and could get worse depending on energy prices and Chinese lock downs. Meanwhile, all those would-be home buyers have to rent. That pushes up rents, which are by definition rent-seeking; and that pushes up US inflation because of how the CPI basket is calculated. So, the next logical economist forecast must be that interest rates have to come down – right? Except they can’t either. If they do, they will try to shift the demand curve to the right just as the supply curve remains shifted to the left, with inflation already far too high. Crucially, the ceiling for rates may be far lower than 7.5%, 8.3%, or 10% y-o-y headline inflation suggests should be the case because of the demand side; but the floor for where rates will go is also far higher because of the supply side. If one is presuming rates can fall far and fast, then the implied collapse in demand is so bad one should be making those calls from a bunker – which, full disclosure, is not something I am opposed to in principle. I think Burry would concur. Moreover, as I keep repeating, governments will not just sit there and do nothing: but their actions will shift supply curves to the left, and demand curves to the right. On the demand side, will Australia’s new government do what every other one has done, and try to shoehorn people into unaffordable houses – perhaps with another cash giveaway from all taxpayers, including renters, directly to home buyers (which actually means home sellers)? On the demand side, China just agreed to buy Brazilian corn for the first time; hooray for Brazil, and welcome to higher corn prices for former buyers of that crop if China does what it usually does and stocks up aggressively (for whatever political or geopolitical reason). On the supply side, India just banned the export of sugar following the same on wheat, complicating global agri trading even more, and helping to push up prices elsewhere. There is likely to be much more of this to come all over - high prices now create incentives to hoard, not export, inverting usual economic logic. On the supply side, US shale firms are using profits to pay down debt or buy back shares rather than drill, baby, drill because of the White House’s aversion to fossil fuels. The Saudis insist on keeping Russia as a member of OPEC+ and are refusing their role as swing producer for the US in time of need (though talks over the Straits of Tiran and President Biden killing off the Iran Deal by refusing to delist the IRGC as terrorists might indicate a belated diplomatic pivot by the States). Anyway, a supply-side lack of refineries is a pressing structural problem there is simply no short or medium-term solution to. On the demand side, the EU *may* be closer to a Russian oil embargo – although it is unclear if Hungary declaring a state of emergency overnight, allowing PM Orban to rule by decree, is a sign that this is closer or much, much further away, and/or if the EU is in trouble. Yes, the real-world impact of this is simply shattering on demand. UK consumers, already facing surging energy bills, have just been told the cap on what they can pay is to rise again this autumn, with expectations the average household bill could hit a staggering £2,800, up another £800, pushing millions more into fuel poverty. Totally unrelated to fresh images of PM Johnson quaffing alcohol at lockdown parties in No 10 Downing Street, the UK Chancellor is expected to introduce a windfall tax on energy companies and energy subsidies for households as soon as tomorrow. That is welcome – but means higher inflation, not only in the short term, but in terms of the shift in psychology towards expectations of such interventions. As someone who has lived in emerging markets and their crashes for years, not just the 2008 western one, the simple message is that there are times when demand collapses and interest rates have to be high anyway. (The RBNZ meet today, and the market suspects we will see another 50bp hike.) There are also times when the government steps in and makes things better,… and times when it steps in and makes things worse. One can have recession, high inflation, a weak currency, and high interest rates all at the same time. One can see stocks collapse and bonds yield massively negative real returns, and cash lose its value due to inflation. And crypto do a ‘Luna’. And gold do nothing versus the US dollar. In such times, think not of pyramid schemes, but of Maslow’s pyramid. Which is what commodity hoarders and subsidizing governments are doing. Meanwhile, along similar lines, as China and Russia carry out joint air-force patrols, George “Emmanuel Goldstein” Soros, looking even more like a walnut than Henry “Give Russia and China all of the things” Kissinger, warns Davos of the risks of ‘World War Three’ on one stage...  as New York Stock Exchange executives boast of how many more Chinese firms they expect to list there in the future on another. ¯backslash_(ツ)_/¯ The BBC carries another explosive expose on China’s alleged treatment of its Uighur minority just as the UN human rights chief Bachelet visits Xinjiang, prompting the US to lash out… at the UN. The Quad, meeting yesterday, initiated further measures to address Indo-Pacific economic security, including joint action to track illegal Chinese fishing, as China’s diplomats are on a whistle-stop tour through Pacific nations to see which of them might like a shiny new air or naval base. As flagged, US Trade Representative Tai also pointed out after the Biden tariffs hullabaloo that it was in the US interest to be “strategic” over removing tariffs – even if it sounds like she was lobbying her own government. Relatedly, we get US Secretary of State Blinken speaking on US China policy tomorrow, with early suggestions there will be no new developments – which is already seeing Congress lobby their own government for more hawkish action. None of these developments ease global tensions, suggest a rapid move back to ‘normal’ economics and lower inflation, or a true return to the pre-Covid market ‘new normal’, even if we get awful economic data. They collectively look a lot like ‘House of Cards’. Just as much as the economy, as Burry implies. Tyler Durden Wed, 05/25/2022 - 10:08.....»»

Category: blogSource: zerohedgeMay 25th, 2022

Lyft joins Uber in "significantly" slowing hiring and cutting budgets, but promises no layoffs: WSJ

Both ride-sharing apps are finding it hard to lure drivers back to their platforms as economies reopen. Associated Press Lyft said in a memo that it would slow hiring and cut budgets, the Wall Street Journal reported. Earlier this month, its rival Uber announced similar plans for a hiring freeze. The two apps are finding it difficult to retain drivers on their platforms. Lyft will be scaling back on hiring and reducing budgets amid concerns of an economic slowdown, but it's stopping short of firing workers, the Wall Street Journal reported on Tuesday. The rideshare startup joins a growing list of tech companies that are finding it more challenging to be profitable."Given the slower than expected recovery and need to accelerate leverage in the business, we've made the difficult but important decision to significantly slow hiring in the US," Lyft President John Zimmer wrote in an internal memo shared on Tuesday, according to the Journal. This means that the company will leave some roles open and only fill those critical to the business, the Journal said. It will also reprioritize projects to focus on those that can have the most immediate impact.In the memo seen by WSJ, Zimmer said that the company is not planning to dismiss any workers.Lyft did not immediately respond to Insider's request for comments.Supply-chain concerns, the war in Ukraine, a declining stock market, and rising inflation are causing many to believe that a recession is just around the corner. In April, Deutsche Bank became the first major Wall Street bank to predict an economic slump.Lyft's cost-cutting plans echo those of its rival Uber as the ride-sharing apps try to find ways to be profitable.On Tuesday, Insider reported that Uber put a freeze on hiring and is reconsidering which roles should be filled and which ones should be left open. Earlier this month, CEO Dara Khosrowshahi said hiring would be treated as "a privilege."Both companies said many drivers left their platforms during the pandemic to work as delivery drivers or found driving unprofitable because of high gas prices. Now, Lyft and Uber have to spend more to get drivers back on their platforms as they expect customers to return. They do so by dangling joining bonuses and rewarding drivers for picking up more passengers. But Lyft and Uber may be burning cash without significant results: Some drivers told Insider they collected the rideshare apps' bonuses to join them and to pick up more passengers. After getting these payouts, they left the platforms again."These super high-priced offers are not getting people to go 'I'm gonna be a rideshare driver again.' People go after that money, then they stop doing Lyft," Steve Johnson, an Uber and Lyft rideshare driver in Colorado, told Insider's Tom Dotan and Nancy Luna."No bonus, no driving. If I wait a few weeks, they will usually try to entice me back with a '20 rides for $200' bonus. Then I'll do it," TheKizzyMan, a Reddit user who claims to be a Lyft driver, said late last year.Read the original article on Business Insider.....»»

Category: dealsSource: nytMay 25th, 2022

Report – Millennials Are Saving More Than Their Parents – Are You Saving Enough?

We financial millennials have the punchline for Boomers for way too long. But, guess what? When it comes to saving money? We’re on fire. According to a study by Charles Schwab, millennials save significantly more for retirement than Baby Boomers. Unlike their parents, this younger generation has started saving money as early as their mid-20s. […] We financial millennials have the punchline for Boomers for way too long. But, guess what? When it comes to saving money? We’re on fire. According to a study by Charles Schwab, millennials save significantly more for retirement than Baby Boomers. Unlike their parents, this younger generation has started saving money as early as their mid-20s. In addition, millennials ranked higher than Generation X-ers on the Retirement Preparedness Scale largely due to an increase in their savings rate from 7.5% to 9.7% in the past two years. .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q1 2022 hedge fund letters, conferences and more Their 401(k) balances are also higher than those of Gen Xers, according to a report released last year by Pew Research Center. There may be some who are surprised by this. To us, it’s nothing new. Despite the misconceptions and stereotypes, like wasting money on avocado toast, millennials are, in fact, savers. Millennials’ Savings Habits “Because of the expensive necessities that surround us, some say millennials aren’t savers,” Matt Rowe wrote in a previous Due article. “However, even though they may perceive us in a certain way, we are savers and work towards saving more and more.” In short, millennials are savers. But, what do millennials do to save? We over save and invest. “One common trend among millennials is that we over save,” adds Matt. We recognize that there will be costly investments in the future, so we should start saving now in order to prepare for them. In order to ensure that we save every week, every month, and every year, we will develop habits and think things through, he says. But, we’re not just saves. We’re over saves. Basically, we purchase the essentials and a bit of what we want, then save the rest. Today, you will find more young people talking about stocks, annuity companies, 401ks, making money online or other investment ideas. If we over-save, we can weather any financial storm. Even better? Once we have financial security, we can get a little riskier with our investments. We set financial goals. “A key aspect of over saving and investing is setting financial goals,” Matt states. This may mean securing a job that pays a certain amount, saving a certain amount each week, or investing a certain amount each month. Our generation sets goals, and we’re savers because we know how to set them and make plans to reach them. Furthermore, we create a budget, accumulate an emergency fund, and pay off our debts following a basic process. It’s not easy. But, we it’s essential if we want to avoid additional debt and live comfortably in retirement. Also, we have a knack from learning from our past financial mistakes. And, if we need help setting goals, we reach out to mentors for assistance. We know how to get deals. The millennial generation knows how to get great deals and save money on everyday products because they grew up in the .com era and Internet explosion. Shoppers often begin by browsing a clearance rack or a tab on a website before making a purchase. Our first step when buying online is to perform a quick Google search to see if discounts are available. In fact, according to the 2019 Millennial Shopping Report, “95% of Millennials search for coupons on the Internet before making an online purchase and report spending more time searching for savings than in prior years.” “Millennials have officially grown up, and so have their shopping and spending habits,” says Marc Mezzacca, CEO of CouponFollow. “As Millennials move towards a fully digital shopping experience, online retailers—like Amazon—have a tremendous opportunity to further increase their market share by prioritizing speed, convenience, and savings across each touchpoint of the consumer journey.” But, it’s just not about finding the best deals. We also save monthly by joining loyalty programs, taking advantage of student discounts, and buying in bulk. Additionally, we have thrifty spending habits and can delay gratification. And, we use apps like Truebill or Trim to manage subscriptions, lower monthly bills, and make the most of our spending. We understand why we spend. While millennials can benefit from saving, understanding the rationale behind a purchase allows them to make smarter choices. When we see an expensive purchase, we think to ourselves, “is it really worth it?”” “In many cases, it is worth it or we don’t have many other options,” explains Matt. To avoid missing out on social events and to fit in with our peers, we spend money to cover our necessities. We like to be social, but we are aware of the cost involved. For example, if we dropped over $100 on sneakers just to fit in, that might prevent us from going to a concert. We can better understand the value of a dollar as long as we know why the purchases were made. We don’t buy a lot of things because they are not worth our money. The millennial generation saves because they know the value of a dollar and understand the reasoning behind our spending habits. It’s Not All Sunshine and Rainbows for Millenials The National Institute on Retirement Security reports that 72% of Millennials are significantly pessimistic about achieving financial security in retirement, compared with 43% of Boomers. And, saving at a younger age has not eased retirement anxiety. Why? Millennials are more financially struggling than previous generations. After all, when we reached our peak earning potential, we began to deal with the Great Recession and Covid. We’re are now preparing for yet another recession, coupled with inflation levels unseen in 40 years. As result millennials are dealing with longer-stretches of joblessness. But, that’s not all. A report published by the Organization for Economic Cooperation and Development (OECD) notes that the middle class is on the verge of disappearing. By comparison, 60 percent of millennials consider themselves middle-class, versus 70 percent of Baby Boomers. We’re also buried under debt — mainly student loan debt. Moreover, 35% of workers over the age of 22 don’t work for firms with defined benefit plans or defined contribution plans. Are Millennials Saving Enough? “I wouldn’t say I’m savvy with it, but I try to be conscientious that I am putting away enough money,” Michelle Wisnieski told Pew. “My dad always told me not to rely on Social Security; you have to invest for yourself. My dad has a pension, and he’s, like, ‘you’re not going to get that.’” At the time, she earned $50,000 and put 4 percent of her earnings into her work’s 401(k). She also gets an additional 4 percent match from her employer. Although she has substantial college debt, which she is also honoring at a regular pace, she has disciplined herself to do this. Despite most millennials following suit, that doesn’t mean that their hard work and discipline will pay off. The Federal Reserve’s most recent Consumer Finance Survey for 2019 shows that Americans have $65,000 in retirement savings. A nest egg of that size will not be able to provide you with an enjoyable retirement. And, it applies to all Americans regardless of age. The median amount of retirement savings held by Americans 55 to 64 years of age was $134,000. While not enough for ensuring a long and happy retirement, it’s still higher than the national average. On the other hand, Americans under 35 have just $13,000 in savings. The good news is that they do have time to catch-up. “Approximately half of Americans are at risk of not being able to maintain their pre-retirement standard of living after they stop working,” said Angie Chen, a research economist at the Center for Retirement Research at Boston College. Many factors can influence retirement planning — such as long-term inflation rates, market returns, and life expectancy. Even so, there are many calculations to make and assets to accumulate in order to have a comfortable retirement. How Much Should You Save for Retirement? When saving for retirement, most experts recommend an annual retirement savings goal of 10% to 15% of your pre-tax income. High earners generally want to hit the top of that range; low earners can typically hover closer to the bottom since Social Security may replace more of their income. But there is no singular formula for figuring out how much you should save for retirement. More than likely, it will depend on your future, both the known and unknown parts, such as: Life expectancy Current spending and saving levels Retirement lifestyle preferences Here are four steps to figure out how much you should save for retirement. Calculate your income needs for the future. “Having a percentage or dollar amount to give you a rough idea for planning can be helpful, but you can’t be focused solely on that,” said Ben Storey, director of Retirement Research & Insights at Bank of America. “Everybody’s lifestyle is different. What they want to do in their retirement years may be very different as well.” To avoid relying on a generic figure, he suggests estimating what you will live on after retirement using what you live on now and what you might change after you retire. But, to give you an idea on how much you’ll spend, the Bureau of Labor Statistics data, states that “older households” typically spend $45,756 per year, or roughly $3,800 per month. FYI, “older households” are defined as those run by someone 65 and older The following are the average retirement spending amounts: Housing: $1,322 Transportation: $567 Health care: $499 Health care: $499 Personal Insurance / Pensions: $237 Charitable Donations In Retirement: $202 Entertainment: $197 Of course, this will vary from person to person. But, for a more personalized calculation, you’ll want to jot down your current spending. Next, determine which of these expenses will increase or decrease. Researchers, for example “have found that once people retire they spend more time shopping carefully and preparing meals at home, for example. Their cost of living for items such as these goes down,” Storey says. Apply a few rules of thumb. In the 2021 Employee Benefit Research Institute’s retirement confidence survey, 7 in 10 workers say they’re sure they’ll have enough money to maintain their lifestyle in retirement. But 1 in 3 say the COVID-19 pandemic hurt their retirement savings. This demonstrates how a job loss or other financial burden may make you have to adjust your retirement plan. And, to accomplish that, here are some pointers to keep in mind. One of the rules used most often is the 80% rule. For those unfamiliar, this simply suggests you’ll need to replace 80% of your preretirement income. However, there is no hard and fast rule here. Some experts advise to aim for about 70%, while others suggest 90%. Want to calculate where you stand? Look at what percentage of your income you’re saving. When you cross the hypothetical finish line, you won’t have to do that anymore. So, for instance, if you’re currently saving 15% of your income, you can easily live on 85% of your income without modifying your expenses. Please don’t forget to add in Social Security and cut payroll taxes — which are typically 7.65% of your earnings. This could possibly reduce your income even more. Using a rule of thumb like this is best used as a comparison tool to take a deeper look into your expenses as a more tailored approach. Use a retirement calculator. By combining your spending estimates with projections, a good retirement calculator will provide you with a clear picture of how far you are along in your savings journey. Generally, with most calculators, certain assumptions are pre-programmed based on research. The default is set for life expectancy, inflation projections, and market returns. As such, you should consider if those assumptions are valid under your situation in order to get the most accurate result. These calculators are easily accessible online. One of the more lauded options, though is the T. Rowe Price calculator. It is a straightforward tool that simplifies retirement planning. And, you can use it whether you’re just getting started with retirement savings, or you’ve already retired. Some other noteworthy retirement calculators are: MaxiFi Basic Retirement Calculator New Retirement Online Tool AARP Retirement Income Calculator Schwab Retirement Savings Calculator Bankrate Retirement Income Calculator Keep visiting regularly. Situations change, which means your retirement needs will also change as well. Examples, would be landing a new job, having a baby, or picking up a new hobby like pickleball. As such, you’ll need to review your retirement calculations. In short, to keep up with the times, it’s always best to make adjustments along the way. It’s much more convenient than trying to catch up later. If you need assistance with balancing your financial goals, you can get help easily. For instance, robo-advisors offer a variety of services and are available online at low fees. But, there are also financial advisors who will work with you in order to reach your long-term goals. Do You Need to Adjust Your Retirement Saving Plan? To make sure you reach your retirement goal, once you know whether you’re behind schedule, on track, or ahead, here’s what you need to do: Take action if you are behind. However, don’t panic. Save more money now. Your money has a longer period of time to potentially grow through compounding if you start saving early. You should increase your annual contributions and ask your employer if they offer a matching contribution. Reevaluate your goals. Would you be able to live on less? Remember, as a retiree, you may not have to pay a mortgage or commute. Keep your options open. You may not need to tap your portfolio for income right away if you work a few more years or work part-time in retirement. Furthermore, delaying Social Security may boost your benefits after reaching full retirement age by up to 8%. As long as you stay on track, keep it up. But, rebalance your portfolio frequently and continue making contributions. Max out your retirement accounts. In 2022, anyone 50 or older can contribute up to $27,000 to a 401(k) and $7,000 to an Individual Retirement Account. Individuals under 50 can contribute a maximum of $20,500 and $6,000, respectively. Don’t give up on stocks. You should be more cautious as you near retirement, but not too cautious. It is advisable to remain exposed to stocks at least to some degree in order to capture market growth without losing sleep in case the market turns sour. Congratulations if you’re ahead! Maintain a steady pace and stay focused. Don’t stop saving. In life, or in the market, you never know what may happen. So, keep on tricking just to play it safe. Consider re-examining your assumptions. Is early retirement on your agenda? Is your retirement spending going to increase? Would you consider supplementing your savings with Social Security or a pension in retirement? Be sure your retirement plans align with your savings. Frequently Asked Questions How much of my income should I put towards savings? Generally, people should try to save at least 20% of their income. Using the 50/30/20 rule of thumb, you should aim to achieve this once you’ve paid off your debts. What amount of savings should you have? Age plays a pivotal role here. For example, you’re unlikely to be able to save as much money if you have just graduated college. Furthermore, the amount of money you can live on while still maintaining your standard of living matters. It’s hard for people to break expensive habits after they become rich because they often develop expensive habits as well, even if they lose their wealth. However, Fidelity and T. Rowe Price, use these ranges as guidelines. You should have saved one year’s salary at the age of 30. It is recommended that you save between 2x and 3x your current salary when you are 40. At age 50, you should have a salary equal to 5x-7x your current income. When you reach the retirement age of 67, when your 401k or retirement account can be withdrawn without tax penalties, you should have saved at least 10x to 11x of your annual salary. How can you start saving more money today? An easy way to get started with saving is to have direct deposit. With direct deposit, your paycheck goes straight into your savings account. If you are offered a 401k plan through your employer, make sure you enroll as soon as possible. For retirement savings, both time and compound interest are your friends. Don’t wait until tomorrow to contribute because you won’t be able to. Where should I save money? It is best to keep emergency savings in a regular savings account. If you don’t have such an account, make sure that you find one that is insured and certified by the FDIC. Consider a high-yield savings account if you are saving for a major purchase or expense. The interest rates are higher than those of a regular savings account, but different conditions and restrictions might apply, such as a minimum balance and deposit amount. Saving for retirement should be done using tax-favored accounts such as IRAs and 401(k)s. What’s the difference between saving and investing? In spite of high-yield savings accounts earning you interest, investing will bring you better returns. Any surplus savings you have after you have saved up an emergency fund can be invested. Investments typically earn a greater return than savings accounts. For inexperienced investors, low-cost index funds are recommended since they are relatively safe and have long-term benefits. Although you’ll go through ups and downs, you’ll end up with a bigger profit than you started with. Article by John Rampton, Due About the Author John Rampton is an entrepreneur and connector. When he was 23 years old while attending the University of Utah he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months he had several surgeries, stem cell injections and learned how to walk again. During this time he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine, Finance Expert by Time and Annuity Expert by Nasdaq. He is the Founder and CEO of Due. Updated on May 24, 2022, 3:41 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkMay 24th, 2022

Fed Mission Accomplished: Real-Time Indicators Show The Labor Market Just Cratered

Fed Mission Accomplished: Real-Time Indicators Show The Labor Market Just Cratered How much longer will the Fed keep hammering stocks and pushing the market - and the US economy - lower? That is the question every trader is asking now that the S&P has brushed against a bear market three times in just the past week and threatening to careen lower, especially as it now appears that the Fed has given up on a soft landing, and is willing to gamble everything to contain inflation, even if it means a hard-landing, which according to a SocGen strategist can only happen if rates rise to 4.5% or higher. The answer is simple: now that Wall Street is convinced that inflation has peaked, both on the sellside (as this Goldman chart shows)... ... and the buyside, with the latest Fund Manager Survey showing a record 68% of respondents expect inflation to drop in coming quarters... ... with GDP on the verge of a technical recession (just one more negative quarter and you're out), and with housing about to crater... ... only strong employment remains. In other words, those who want to know when the Fed will capitulated on its market-crushing tightening are exclusively focused on negative inflections in the labor market, because as even Bank of America's economists wrote last week (the note is available to professional subscribers), the Fed will be hard-pressed to drive inflation down towards its 2% target without raising the unemployment rate meaningfully, which in turn will require a significant downshift in labor demand. In other words, the Fed wants a mild recession (but certainly not a depression) to hammer labor demand and short-circuit the wage-price spiral. So what data should traders be looking at? Well, job postings are perhaps the best leading indicator of unfilled labor demand. The official government source is the Job Openings and Labor Turnover Survey (JOLTS) from the BLS, which we profiled every month. As of March, the latest available data, there were a record 11.5M total job postings, nearly double the number of unemployed persons. A drawback of JOLTS is that the data are rather lagged (it tracks one month behind the latest payrolls report) and, in the current environment, trends can change quickly.  To get a more accurate answer,Bank of America has used data from Revelio labs on job postings to get a better sense of incremental labor demand in real-time. Unlike JOLTS, Revelio measures new instead of total job postings, which tracks total job postings closely with a correlation of 93%. So here is the big news: in April, new job postings fell by 2.0M to 6.6M according to Revelio’s data. This is a huge deal as it represents the largest monthly drop in the available history going back to May 2019!  Furthermore, the decline was broad-based with 146 of the 147 industries - virtually everyone - reported by Revelio recording a sequential decline in new postings. Moreover, the share of industries with a Y/Y decline in new postings rose to 22.5%, highest since last Feb. In short, as BofA economist Stephene Juneau writes, the drop in job postings is a sign that labor demand is beginning to cool, although there will be a distinct lag between the crack seen by such 3rd party data collectors as Revelio and the US Department of Labor (just like a year ago we warned that housing inflation was about to soar by looking not at lagging government housing data but real-time metrics from Apartment List and Zillow, see our June 2021 article "And Now Prices Are Really Soaring: June Rent Jump Is Biggest On Record"). Furthermore, the gap between new postings and voluntary separations will likely narrow when we get the April data from JOLTS, but it is unlikely to close completely (unless the BLS kitchen sinks the April/May data ahead of the midterms). The upshot is that we will likely need to see new job postings fall much further in order to cool down the labor market, and subsequently wage and price pressures. Fine, the skeptics will counter, "this is just one indicator. What about other real-time reads of the job market?" Well, aside from the Revelio data, there are plenty of other signs of moderating labor demand. Consider the following: 1) The share of businesses planning to increase employment in the NFIB small business survey has fallen by 8%  since December 2021 to 20% in April. 2) Challenger Job cuts increased by 6% Y/Y in April, the first annual increase in fifteen months. 3) In an ominous return to the "normlacy" that defined the stagnating Obama presidency, the number of workers with multiple jobs continues to pick up. This is the clearest indicator yet that the "Great Resignation" post-covid trends are now actively in retirement. 4) Even clearer proof that "unretirements" continue to rise is the latest data from Indeed, which shows that 3.3% of the workers who "retired" a year ago are once again employed. 5.) It's not just Revelio seeing a drop in job posting. Bank of America's own analysts (in this case in a note from Sara Senatore) show that job posting growth across restaurant categories decelerated sharply on a sequential basis. Job postings growth slowed most in Beverages – to +23% y/y from +268% in March. For the remaining categories, y/y growth in postings slowed most in Fast Food (-16% y/y vs +126% in Mar), followed by Full Service (-67% y/y vs +13% in Mar) and Fast Casual (-66% y/y vs +7% in Mar). In April, y/y growth in job postings for engineers increased for Beverages & Snacks and Fast Casual while Full Service categories and Fast Food postings growth decreased (the full BofA note is available to pro subs in the usual place) . Last but not least, there is growing anecdotal evidence that the labor market just hit a brick wall, with the likes of Amazon, Facebook, Walmart, Target, and Netflix all recently giving negative guidance on employment. Indeed, last week, Bank of America's trading desk called it "the end of the labor shortage" to wit: "Did co's double-order people? WMT and AMZN are the 2 biggest private employers... and both have made comments on their calls... on being "overstaffed." The desk's conclusion: "the 'labor shortage' narrative officially died in the past week." And from there to a spike in the unemployment rate and a collapse in wages it's at most a few months. Which confirms what we (and Morgan Stanley and BofA's Michael Hartnett) said previously: the recession will begin in the second half of 2022, with the Fed ending its rate hike cycle well ahead of schedule, and proceeding to cuts rates and launch its latest QE some time in early 2023. Tyler Durden Sat, 05/21/2022 - 20:00.....»»

Category: dealsSource: nytMay 21st, 2022

Economist Stephen Roach says the US is headed for stagflation, and warns markets aren"t accounting for massive Fed tightening

Roach said the Federal Reserve would have to hike interest rates even more aggressively to get inflation under control. "50 basis points doesn't cut it." Produce that is on sale at Whole Foods Market in Washington, DC.Matt McClain/The Washington Post/Getty Images Economist Stephen Roach explained why stagflation is his base case for the US in a CNBC interview. Markets aren't prepared for the massive tightening the Fed needs to do to tame inflation, he said Thursday. "50 basis points doesn't cut it," he said, arguing the Fed will have to be more aggressive than it plans. Economist Stephen Roach said stagflation is his base case scenario for the US economy, as the Federal Reserve has a massive amount of tightening to do if it wants to bring inflation under control.Speaking to CNBC's "Fast Money" on Thursday, the former Morgan Stanley Asia chairman said the inflation problem is widespread and persistent, and is likely to last for a long time.Investors have become increasingly concerned about the risk of an economic slowdown, or even recession, as the Fed takes aggressive action to combat inflation running at 40-year-highs. Top economist Mohamed El-Erian said this week he sees stagflation — a toxic mixture of a stagnant economy and rampant inflation — as unavoidable for the US.Roach last warned of a 1970s-style stagflation two years ago, at the onset of the pandemic. At that time, he was worried about supply-side pressures, but now he's concerned about demand. This year, the war in Ukraine and China's COVID-zero policy have help clog up the supply chain, he noted."The demand side has really gotten away from the Fed, and the Fed has a massive amount of tightening to do," he said. "The markets are not even close to discounting the full extent of what's going to be required to bring the demand side under control.""That underscores the deep hole that Jerome Powell is in," he added.In May, Fed Chair Powell and fellow policymakers raised interest rates by 50 basis points, the biggest increase at one meeting in 22 years. The central bank signaled that similarly aggressive rate hikes would follow.The Consumer Price Index, a closely watched measure of inflation, climbed 8.3% in the year through April, showing the highest inflation since the 1980s. Yale economist Roach disagreed with the argument that inflation would peak and fall back, and he believes it will stay above 5% for the rest of the year. Given that, Powell and the Fed will have to go a lot faster, as that would suggest an undershoot."Even if he does 50 basis points at the next five FOMC meetings in 2022, the fed funds rate ends the year 3.25. Again, that's still nearly 2 points below what I think the inflation rate will be," Roach said."50 basis points doesn't cut it. And, by ruling out something larger than that, he just sends a signal that his hands are tied," he added. "And I think the markets are uncomfortable with that conclusion."Read more: A portfolio manager at billionaire investor Mario Gabelli's $41 billion firm says to buy these 27 stocks that have the pricing power to deliver returns as inflation soarsRead the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 20th, 2022

68% Of CEOs Say Fed Policy Is About To Trigger A Recession

68% Of CEOs Say Fed Policy Is About To Trigger A Recession No matter how many Tom Lees and Marko Kolanovics CNBC wants to roll out to try and play things off like everything is fine, most CEOs - who spend their time in the real world instead of "analyzing" it - are bracing for a recession.  In fact, "CEO confidence has tumbled to the weakest level since the beginning of the Covid-19 pandemic", a new report from CNN, citing The Conference Board, said this week. CEO confidence is now negative for the first time during the economic expansion, the report notes. The C suite is bracing for a turndown as a result of Fed policy, the report notes.  68% of CEOs expect that Fed policy is going to trigger a recession, according to a survey fielded between April 25 and May 9 which looked at the responses of 133 CEOs. Despite this, only 11% of these CEOs are predicting a "hard landing". Most CEOs said they expect a "very short, mild" recession. We'll make sure to keep an eye on this figure as we progress further into 2022, especially if the Fed decides to hold course.  Dana Peterson, The Conference Board's chief economist, said: "Businesses are being challenged on so many fronts right now and CEOs have elevated expectations of a recession." 61% of CEOs surveyed also said that economic conditions have worsened over the last 6 months. This compares to 35% who said the same in Q1. Only 14% of CEOs said they see "improving economic conditions".  Mike Sommers, CEO of the American Petroleum Institute, commented: "Recessionary-concerns are real." He added that recessions often follow interest rate hikes.  Despite this, there are some "economists" who continue to argue that recession isn't necessarily imminent. RSM chief economist Joe Brusuelas concluded: "Concerns about an immoderate near term recession are generally overblown. The Fed is attempting to thread the needle while wearing boxing gloves and a mouth guard which reduces its degrees of freedom to act without causing damage to the real economy." Tyler Durden Thu, 05/19/2022 - 21:40.....»»

Category: dealsSource: nytMay 19th, 2022

A "summer of pain" is shaping up for US stocks, with a 45% slide from the S&P 500"s top on the cards, Guggenheim’s Scott Minerd predicts

US stock markets face battering in the coming months, Guggenheim's Scott Minerd said, with the Nasdaq and S&P plunging 75% and 45%, respectively. Guggenheim Partners's Scott Minerd.Photo by PATRICK T. FALLON/AFP via Getty Images US stock markets will likely face much tougher conditions this summer, investor Scott Minerd said.  The Nasdaq Composite and S&P 500 could plunge 75% and 45% respectively, he predicted.  Minerd attributed an intense ruckus in the markets to the Fed's tightening monetary policy.  The stock markets are in for a grim summer with the Nasdaq Composite and S&P 500 in for huge slides, according to Guggenheim's Scott Minerd. In an interview with MarketWatch Wednesday, billionaire investor Minerd said there's a possibility of the Nasdaq Composite plunging 75% from last year's peak and the S&P 500 dropping 45% from its top in the coming months. He compared the possible implosion to the dot-com bubble burst of the 1990s. "That looks a lot like the collapse of the internet bubble," he said. Minerd's pessimistic outlook is fueled by the Federal Reserve's aggressively tightening monetary policy where interest rates have been lifted rapidly. It comes in response to soaring inflation as a result of pandemic-era fiscal support, global supply chain blockages and surging energy and commodity prices from the war in Ukraine. He said the Fed is likely to raise rates even further until inflation cools down and "until they see a clear breaking of the inflation trend." If that means the Fed will dial up the benchmark rate above what is considered a neutral rate, that's what will happen, Minerd said.  "With the passage of time as the Fed continues to hike, we will likely find ourselves experiencing the effects of increasingly restrictive monetary policy. Well before it reaches this terminal rate the Fed will increase the risk of overshooting, causing a financial accident, and starting a recession," Minerd said in a research note. With more possible rate hikes pending, Minerd said a recession will be hard to avoid. He echoes sentiments expressed by other industry experts including Goldman Sachs CEO David Solomon who recently said there is a "reasonable" chance that the US economy will enter a recession. He added the Fed wrongly appears to have few concerns about a bear market in stocks. "We are probably going to have a pretty severe selloff," he anticipated.  US stock markets have been caught in a brutal storm this year, with the tech-heavy Nasdaq and S&P 500 plunging. On Wednesday, US stock indexes fell further, suffering their biggest one-day loss since the peak of the pandemic, with the S&P 500 losing 4% and the Nasdaq 100 falling 5.1%. Despite volatility in the market, the Fed is unlikely to cushion stocks from sliding even further, Minerd said. "What's clear to me [is that] there is not market put, and I think we're all waking to that fact now," he said.Against such a backdrop, stock markets are heading for a "summer of pain," he added. He continued, predicting October is when stocks may hit a bottom.  Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 19th, 2022