Everything-Selloff on Wall Street Deepens on 98% Recession Odds Ned Davis Research now sees a 98% chance of a looming global recession while Morgan Stanley Wealth Management’s Lisa Shalett warns earnings optimists are sleepwalking off a cliff.
(…) A global recession probability model by Ned Davis Research recently rose above 98%, triggering a “severe” recession signal. The only other times the model’s been that high was during previous acute downturns, such as in 2020 and 2008-2009, according to the firm’s Alejandra Grindal and Patrick Ayres.
“This indicates that the risk of severe global recession is rising for some time in 2023, which would create more downside risk for global equities,” they wrote in a note.
This NDR chart makes Bloomberg’s front page today. You saw it here on September 19…
- Fed Hikes Harming Global Markets, Economy, Ex-PBOC Official Says The Fed’s decision to lift interest rates sharply to combat stubbornly high inflation is weakening many major currencies and spurring capital outflows from developing countries.
Chicago Fed National Activity Index Weakens in August
The Federal Reserve Bank of Chicago reported that the Chicago Fed National Activity Index (CFNAI), a weighted average of 85 monthly indicators of national economic activity, declined in August to 0.00 from 0.29 in July, revised from 0.27. The May and June readings were both negative.
The index’s three-month moving average improved to 0.01 in August after holding steady m/m at -0.08 in July. The figure was down from a recent high of 0.48 in December. During the last 10 years, there has been 76% correlation between the change in the Chicago Fed Index and quarterly growth in real GDP.
Advisor Perspectives highlights the -0.70 rule:
Anecdotal evidences:
- The fact [is], we are being a bit more responsible through one of the toughest macroeconomic conditions underway in the past decade. (Alphabet CEO Sundar Pichai to employees last week)
- Apple has instructed key supplier Foxconn to idle five iPhone 14 production lines at its Zhengzhou factory, Asian Tech Press reported Friday, “as the sales of this iPhone model fell short of expectations.”
- Amazon announced today that it will hold a “Prime Early Access Sale” on Oct. 11 and 12, marking a departure from prior form as the comprehensive “Prime Day Sale,” which took place in July, was heretofore a once-per-annum occasion.
- The Logistics Managers’ Index reads in at 59.7 in August, down (-1.0) from July’s reading of 60.7. This is the first reading below 60.0 since May of 2020 and the third consecutive reading below the all-time index average of 65.3. (…) the rate of growth is now 16.5 points down from March when we saw an all-time high reading of 76.2. This is the largest slide we have seen over a five-month period in the history of the index. The logistics industry is currently facing an interesting mix of decreased consumer demand, but with an abundance of goods throughout supply chain systems.
INFLATION WATCH
“Last month, the price of oil worldwide is down,” Biden said at a meeting of the White House Competition Council. “We haven’t seen the lower prices reflected at the pump, though. Meanwhile, oil and gas companies are still making record profits — billions of dollars in profit.” (…)
“My message is simple,” Biden said. “To the companies running gas stations and setting those prices at the pump: Bring down the prices you’re charging at the pump to reflect the cost you pay for the product. Do it now.” (…)
In truth, the last 2-week decline in WTI has yet to be passed on, normal lag, but the blame is not warranted based on this gasbuddy.com chart. But November 8 is only 6 weeks away.
Biden Officials Weigh Buying Oil at Around $80 to Refill Reserves-
Lumber Prices Fall Back to Pre-Covid Levels The drop has brought two-by-fours back to what they cost before the pandemic building boom and point to a sharp slowdown in construction.
- “We’ve seen minor improvement in a few areas. But all in, pressures from higher commodity prices, higher wages and higher transportation costs and supply chain disruptions. They’re still present, but we are seeing just a little light at the end of the tunnel. And if you recall in the third quarter, we indicated that price inflation overall was about 7% plus for us. For the fourth quarter and talking with our merchants, the estimated price inflation overall was about 8%, a little higher on the food and sundries side, a little lower on fresh foods, and both higher and lower on the nonfood side. We’re seeing commodities — some commodities prices coming down, such as gas, steel, beef, relative to a year ago, even some small cost changes in plastics. We’re seeing some relief on container pricing. Wages are still the higher thing when we talk to our suppliers. And as we all know, wages still seem to be the one thing that’s still relatively higher. But overall, some beginnings of some light at the end of that tunnel. And of course, that could change each week.” – Costco (COST ) CFO Richard Galanti (via The Transcript)
China Reins In Its Belt and Road Program, $1 Trillion Later After loans have gone sour and projects have stalled, Beijing is revamping its troubled initiative
China has spent a trillion dollars to expand its influence across Asia, Africa and Latin America through its Belt and Road infrastructure program. Now, Beijing is working on an overhaul of the troubled initiative, according to people involved in policy-making.
A slowing global economy, combined with rising interest rates and higher inflation, have left countries struggling to repay their debts to China. Tens of billions of dollars of loans have gone sour, and numerous development projects have stalled. (…)
After nearly a decade of pressing Chinese banks to be generous with loans, Chinese policy makers are discussing a more conservative program, dubbed Belt and Road 2.0 in internal discussions, that would more rigorously evaluate new projects for financing, the people involved said. They have also become open to accepting some losses on loans and renegotiating debt, something they had been previously unwilling to do. (…)
Nearly 60% of China’s overseas loans are now held by countries considered to be in financial distress, compared with 5% in 2010, according to economists Sebastian Horn, Carmen Reinhart and Christoph Trebesch, who have written about international debt. (…)
The process could force Chinese banks to accept losses, something they’ve long opposed. For years, Beijing preferred to extend the maturity of troubled loans, a practice known in the finance industry as “extend and pretend.” That strategy risks prolonging countries’ debt woes rather than fixing them. (…)
While the U.S. finances nearly all its overseas development projects with aid, China acts more like a banker, said Bradley Parks, executive director of AidData and co-author of “Banking on Beijing.” AidData’s analysis shows that for every dollar of aid to low-income and middle-income countries, China has provided $9 of debt. The opposite is true of the U.S.: For every dollar of debt that it provides to low-income and middle-income countries, it provides at least $9 of aid. (…)
For all its troubles, the initiative has succeeded in drawing more countries into Beijing’s orbit over the past decade, with many recipient countries voting alongside China at the United Nations. More prudent lending by Beijing could make Chinese financing less appealing to some countries, making it tougher to win over governments. (…)
(Gundlach Starts Buying After Worst US Treasury Rout in Decades
- The YOY change is at a level that normally is associated with economic and/or financial stress. (The Market Ear)
Morgan Stanley