This is not really a market built for rallying. This quarter, there has only been one consecutive daily gain of at least 2% for the S&P 500, and early action in US stock futures suggests there is no one-second worry.
Citigroup’s latest global economic outlook tells the story, as the Wall Street bank cut its global forecast for 2022 and 2023. The reductions weren’t dire — one-tenth in 2022, two-tenths in 2023 — but the commentary was grim.
“A series of severe supply shocks continues to affect the global economy. Earlier in the year, we expected this narrative to be changing, but headwinds appear to have become more intense and debilitating,” said analysts led by Nathan Sheets, the bank’s chief global economist. The COVID-19 lockdowns in China, the Russia-Ukraine war and enduring supply chain tensions were all to blame, to which central bank rate hikes and a slowdown in consumer appetite for goods are now added. “We judge that the aggregate probability associated with the various manifestations of recession is now approaching 50%,” they said.
|
Area |
GDP growth in 2021 |
GDP growth in 2022 |
GDP growth in 2023 |
Chg in 2022 |
Chg in 2023 |
|
Global |
5.8% |
3% |
2.8% |
-0.1 |
-0.2 |
|
WE |
5.7% |
2.3% |
1.7% |
-0.3 |
-0.4 |
|
China |
8.1% |
3.9% |
4.8% |
-0.3 |
|
|
euro zone |
5.3% |
2.5% |
1.9% |
0.1 |
-0.5% |
|
Source: Citi |
|||||
So what would a recession look like? They gave three possibilities.
One, a “garden variety” recession. This means that unemployment rises by “several” percentage points, growth would have “a few clearly weak quarters”, but inflation would fall. The Citi team said most market participants lean towards this view. (And even the most pessimistic assessments of Deutsche Bank and Nomura can be classified this way.)
The second is a more painful taming of inflation. “With global inflation above 8% in the US, Eurozone and UK, these risks remain on the table. Alternatively, the global economy, which has not seen a boom cycle of this intensity for a generation, may still show greater sensitivity to higher rates than central banks expect and this, in turn, could trigger a more sustained downturn,” they said. they.
The third is stagflation, where growth slumps and inflation continues to rage. The Citi team assigned a “relatively low” probability to this outcome. “While the current episode is challenging, rising inflation is a relatively recent occurrence and long-term inflation expectations have remained anchored at much lower levels. So our working hypothesis is that inflation would fall as recessionary conditions set in,” they said.
the buzz
Federal Reserve Chair Jerome Powell will testify on the central bank’s monetary policy outlook, just a week after a 75-basis-point rise. “He will be pressed as usual from the right to explain why inflation has not yet been tamed and simultaneously from the left to explain whether they are putting the recovery at undue risk to achieve their objective. That said, we doubt the President will give us much new information on the June FOMC [Federal Open Market Committee] meeting and will likely keep any future guidance very limited and data-driven,” strategists at NatWest said.
Richmond Fed President Thomas Barkin will be speaking for the second day in a row, as will Chicago Fed President Charles Evans and Philadelphia Fed President Patrick Harker.
President Joe Biden has called for a three-month suspension of taxes on gasoline and diesel. It’s up to Congress to decide. Germany, meanwhile, is preparing to declare a natural gas emergency, according to reports.
Uber Uber,
is bringing back ride-sharing in select US cities.
A strong earthquake in Afghanistan left at least 920 people dead.
The market
US stock futures ES00,
NQ00,
were markedly lower, with the Dow YM00 contract,
losing more than 400 points.
Crude Oil Futures CL.1,
fell sharply, while the 10-year Treasury yield TMUBMUSD10Y,
dropped to 3.21%.
main quotes
Here were the most active stock market tickers as of 6am in the east.
| Highlighter | security name |
|
TSLA, |
Tesla |
|
GME, |
GameStop |
|
AMC, |
AMC Entertainment |
|
NIO, |
NIO |
|
REV, |
Revlon |
|
AAPL, |
Litter |
|
TWTR, |
|
|
AMZN, |
Amazon.com |
|
MUNL, |
Mullen Automotive |
|
BABYSITTER, |
alibaba |
random readings
Actor Martin Sheen says he regrets changing his name, which is still Ramon Estévez legally.
For almost everyone, vitamins are a waste.
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