Recession risks roil markets but not yet alarming
By Yoruk Bahceli and Dhara Ranasinghe
Aug 9 (Reuters) -Disappointing U.S. jobs data has shaken confidence in a soft landing for the world's largest economy, sending global equity markets tumbling and bets on interest rate cuts surging.
But investors abandoning a popular yen carry trade has played a big rolein the selloff, complicating the message from asset prices on the economic outlook.
The likelihood of a recession is anyone's guess. Goldman Sachs has raised its odds of a U.S. recession to 25%. JPMorgan sees a 35% chance of one starting before year-end.
Here is what five closely-watched market indicators say about global recession risks:
1/ DATA PUZZLE
The U.S. unemployment rate jumped near a three-year high of 4.3% in July amid a significant slowdown in hiring.
It fanned recession fears by reaching a trigger point of the "Sahm rule", which has shown historically a recession is underway when the three-month rolling average unemployment rate rises half a percentage point above the low of the prior 12 months.
Still, many economists reckon the reaction to the data was overblown given the numbers may be skewed by immigration and Hurricane Beryl. Better-than-expected jobless claims data on Thursday also supported that view, sending stocks rallying.
"Payrolls are still growing. If you started to see payrolls turn negative, that would make me much more concerned that a genuine recession is starting," said Dario Perkins, managing director, global macro at consultancy TS Lombard.
The U.S. economy grew 2.8% in the second quarter on an annualised basis, double the first quarter rate and on par with the pre-pandemic average. Services activity also points to growth continuing.
Beyond the United States, however, business activity indicators point to faltering euro zone growth, while China's recovery remains fragile.
Global economic data is delivering negative surprises near the highest rate since mid-2022, Citi's surprise index shows .CESIGL.
2/ CORPORATE ROUT
MSCI's global stocks index .MIWD00000PUS is down more than 6% from July's record highs, while the U.S. S&P 500 has lost over 4% so far in August .SPX.
Yet analysts reckon stocks, which are still up around 7% globally this year, are far from signalling a recession.
Goldman Sachs estimates that every further 10% selloff in U.S. equities would reduce growth over the next year by just under half a percentage point.
Credit conditions could prove more important, analysts say.
They note that although the risk premium corporate bonds pay over government bonds has widened in Europe and the United States, it was correcting from historically tight levels and moves were not yet pronounced enough to suggested recession risks were high.
Recession expectations implied by the gap between U.S. investment grade bond and Treasury yields are about half as high as they were in 2022-2023, according to BofA.
3/ CUT AWAY
Spurred on by the U.S. jobs data and a dovish-sounding Federal Reserve, traders now price in around 100 basis points of cuts in U.S. rates by year-end.
That is down from over 130 bps earlier this week, but double the roughly 50 bps anticipated on July 29. Markets also price in more than a 50% chance of a hefty 50 bps September cut. FEDWATCH
Major banks have also added to the Fed cuts they expect this year.
Steve Ryder, portfolio manager at Aviva Investors, said the Fed was likely to cut rates three times this year, but given uncertainty around how economic data evolves, it was understandable that markets were pricing the probability that it would have to cut more.
Elsewhere, traders see a high chance of three more European Central Bank rate cuts this year, having seen less than a full chance of a second cut in mid-July.
4/ YIELD CURVE
Rate cut bets have sent shorter-dated U.S. Treasury yields tumbling and the closely-watched part of the yield curve that tracks the gap between 10-year and 2-year Treasury yields US2US10=TWEB turned positive for the first time since July 2022 on Monday.
While a yield curve inversion has historically been seen as a good predictor of a recession on the horizon, the curve tends to revert back to normal as the recession nears.
However, with the curve inverted for a record time this cycle with no recession materialising, a majority of strategists Reuters polled earlier this year no longer see it as a reliable recession indicator.
The curve has inverted back since, standing at minus 5 basis points on Thursday.
5/ DR COPPER
Known as "Dr Copper" for its track record as a boom-bust indicator, the metal's fall to 4-1/2 month lows this week puts it firmly on the recession watch list.
Trading at around $8,750 CMCU3 a metric ton, three-month London Metal Exchange copper prices have slumped roughly 20% from a record high scaled in May, reflecting pessimism about the global economic outlook.
Oil prices LCOc1, another barometer of the health of global demand, are near multi-month lows. But their fall has been limited by worries that Middle East tensions could squeeze supplies from the largest oil producing region.
Sahm Rule gets triggered Sahm Rule gets triggered https://tmsnrt.rs/3PmvWx5
Recession indicator turns positive for first time since 2022 Recession indicator turns positive for first time since 2022 https://reut.rs/3A8fn4m
Benchmark copper on the London Metal Exchange Benchmark copper on the London Metal Exchange https://reut.rs/3XbstHn
Traders pile in on rate cut bets as economic data softens https://reut.rs/3LY6FZ1
A shake out in world equity markets https://reut.rs/3YCO109
Reporting by Yoruk Bahceli and Dhara Ranasinghe; editing by Tomasz Janowski
Actifs liés
Dernières actualités
Avertissement : Les entités de XM Group proposent à notre plateforme de trading en ligne un service d'exécution uniquement, autorisant une personne à consulter et/ou à utiliser le contenu disponible sur ou via le site internet, qui n'a pas pour but de modifier ou d'élargir cette situation. De tels accès et utilisation sont toujours soumis aux : (i) Conditions générales ; (ii) Avertissements sur les risques et (iii) Avertissement complet. Un tel contenu n'est par conséquent fourni que pour information générale. En particulier, sachez que les contenus de notre plateforme de trading en ligne ne sont ni une sollicitation ni une offre de participation à toute transaction sur les marchés financiers. Le trading sur les marchés financiers implique un niveau significatif de risques pour votre capital.
Tout le matériel publié dans notre Centre de trading en ligne est destiné à des fins de formation / d'information uniquement et ne contient pas – et ne doit pas être considéré comme contenant – des conseils et recommandations en matière de finance, de fiscalité des investissements ou de trading, ou un enregistrement de nos prix de trading ou une offre, une sollicitation, une transaction à propos de tout instrument financier ou bien des promotions financières non sollicitées à votre égard.
Tout contenu tiers, de même que le contenu préparé par XM, tels que les opinions, actualités, études, analyses, prix, autres informations ou liens vers des sites tiers contenus sur ce site internet sont fournis "tels quels", comme commentaires généraux sur le marché et ne constituent pas des conseils en investissement. Dans la mesure où tout contenu est considéré comme de la recherche en investissement, vous devez noter et accepter que le contenu n'a pas été conçu ni préparé conformément aux exigences légales visant à promouvoir l'indépendance de la recherche en investissement et, en tant que tel, il serait considéré comme une communication marketing selon les lois et réglementations applicables. Veuillez vous assurer que vous avez lu et compris notre Avis sur la recherche en investissement non indépendante et notre avertissement sur les risques concernant les informations susdites, qui peuvent consultés ici.
