RECESSION
A Soft Landing
Now it's time for some predictions and updates!
Last week, the Fed had some interesting things to say about a recession in the United States:
“The staff now has a noticeable slowdown in growth starting later this year in the forecast. But given the resilience of the economy recently they are no longer forecasting a recession,” said Fed Chair Jerome Powell.
Citigroup analysts raised their S&P 500 index target for the end of 2023 by 600 points. In other words, it's a revision that reflects an increased chance of a soft landing for the U.S. economy.
Definition: A soft landing refers to a moderate economic slowdown following a period of growth. The economy doesn't enter a full-blown recession in a soft landing.
The Australian dollar has been caught in the cross winds of mixed economic data and this week’s FOMC meeting. Australia’s strong employment report saw bets increase of an August hike for the RBA, only to see softer inflation figures quickly scale back those expectations. If this were any other central bank I would say with conviction that the RBA will hold, but if they are to hike it would not be the first time I have been caught off guard with their apparent policy clues.
We’re finally seeing rate hikes begin to bite with the weakest retail spend in six months. Department stores spending is a notable drag at -5%. And I think this now cements a pause, given the weaker inflation report earlier this week.
The peak of the curve is 4.275% in January 2024, which implies an 88% chance of a final 25bp at their first meeting next year. I think it is reasonable to assume at least one more hike is coming, but whether it arrives next week is probably closer to 60/40 in favour of a hold than the mere 14% odd priced in by markets.
A Soft Landing
Now it's time for some predictions and updates!
Last week, the Fed had some interesting things to say about a recession in the United States:
“The staff now has a noticeable slowdown in growth starting later this year in the forecast. But given the resilience of the economy recently they are no longer forecasting a recession,” said Fed Chair Jerome Powell.
Citigroup analysts raised their S&P 500 index target for the end of 2023 by 600 points. In other words, it's a revision that reflects an increased chance of a soft landing for the U.S. economy.
Definition: A soft landing refers to a moderate economic slowdown following a period of growth. The economy doesn't enter a full-blown recession in a soft landing.
The Australian dollar has been caught in the cross winds of mixed economic data and this week’s FOMC meeting. Australia’s strong employment report saw bets increase of an August hike for the RBA, only to see softer inflation figures quickly scale back those expectations. If this were any other central bank I would say with conviction that the RBA will hold, but if they are to hike it would not be the first time I have been caught off guard with their apparent policy clues.
We’re finally seeing rate hikes begin to bite with the weakest retail spend in six months. Department stores spending is a notable drag at -5%. And I think this now cements a pause, given the weaker inflation report earlier this week.
The peak of the curve is 4.275% in January 2024, which implies an 88% chance of a final 25bp at their first meeting next year. I think it is reasonable to assume at least one more hike is coming, but whether it arrives next week is probably closer to 60/40 in favour of a hold than the mere 14% odd priced in by markets.