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Central Banks BlackRock – central banks are causing recessions rather than coming to the rescue

  • We are in a new world shaped by supply. Major spending shifts and production constraints are driving inflation.
  • Constraints are rooted in the pandemic and have been exacerbated by the energy shock and China’s lockdowns.
  • We are in a new macro regime where central banks are causing recessions rather than coming to the rescue. That is clear in the rate path of major central banks set to overtighten policy as they battle inflation. We think they will eventually pause but not cut rates when confronted with the damage of sharp rate hikes – that could be the reality of recession or the appearance of financial cracks, as seen in the UK.
  • The Federal Reserve … signaled it would have to take rates higher than it originally planned, even if at a slower pace.
  • The Bank of England has acknowledged some recession is necessary to get inflation down, yet like other central banks, it is failing to acknowledge the scale of the recession needed to get it all the way down to target.
  • The ECB continues to normalize monetary policy, but a change in tone suggests it could be poised to slow the pace of hikes. We think the ECB is still raising rates into a recession triggered by the energy shock and its hikes.
  • Investment implication: We are tactically underweight DM equities after having further trimmed risk.

China October data – retail sales fall y/y, industrial production up

Chinese economic activity data for October 2022. Both sales and output missed expectations.

china otco data 15 November 2022

October retail sales fell y/y. They last fell back in May when Shanghai was locked down. Rolling COVID restrictions and a collapsing property market were negative influences on this data for October. Yesterday I posted on moves from Chinese authorities to address COVID and property woes and boost the economy

Other data released included:

Surveyed Jobless Rate 5.5% y/y

  • expected 5.5%, prior 5.5%

Property Investment YTD -8.8% y/y

  • expected -8.3%, prior -8.0%

Fixed Assets Ex-Rural +5.8% YTD y/y, also a miss

  • expected 5.9%, prior prev 5.9%

IMF on global economy – “the outlook is gloomier”, particularly in Europe.

The International Monetary Fund has written in a piece prepared for the summit of G20 leaders in Indonesia,

recent high-frequency indicators “confirm that the outlook is gloomier,” particularly in Europe
It said recent purchasing manager indices that gauge manufacturing and services activity signaled weakness in most Group of 20 major economies, with economic activity set to contract while inflation remained stubbornly high
IMF citing:

 

  • tightening monetary policy
  • triggered by persistently high and broad-based inflation
  • weak growth momentum in China
  • ongoing supply disruptions and food insecurity caused by Russia’s invasion of Ukraine

Info via Reuters.

Eurozone S&P Mfg PMI Final Actual 48.4 (Forecast 48.5, Previous 48.5)

Euro zone factory activity declined again in Sept as energy bills bite -PMI

Actual 48.4 (Forecast 48.5, Previous 48.5)

Manufacturing activity across the euro zone declined further last month as a growing cost of living crisis kept consumers wary while soaring energy bills limited production, a survey showed on Monday.

“The ugly combination of a manufacturing sector in recession and rising inflationary pressures will add further to concerns about the outlook for the euro zone economy,” said Chris Williamson, chief business economist at S&P Global.

Full Reuters Note

Inflation data the highlight in terms of European releases today

The pound may have recovered well after its crash on Monday but the heightened volatility isn’t exactly a good sign for the currency itself, as it is arguably a sign that traders are shouting for more credible policy between the central bank and the government. The dollar is little changed so far today after backing away from its highs in the past two days, with month-end and quarter-end trading also in focus. The swings are likely to continue today so that will make it tricky to interpret things until we get to next week.

All eyes will stay on the bond market as a signal for broader market sentiment but as mentioned above, there might be mixed flows taking place with month-end and quarter-end rebalancing also something to consider. The technicals are your best friend in these sorts of situation, so that will at least help provide some guidance amid the recent bout of volatility ahead of the weekend.

Looking ahead in Europe, the euro and ECB outlook will be a focus point as we get French and overall Eurozone inflation data for September. The latter might have the propensity to surprise on the high side, and perhaps hit double-digits – just as what we saw with the German figures yesterday here.

0600 GMT – UK Q2 final GDP figures
0600 GMT – UK September Nationwide house prices
0645 GMT – France September preliminary CPI figures
0700 GMT – Switzerland September KOF leading indicator index
0755 GMT – Germany September unemployment change, rate
0830 GMT – UK August mortgage approvals, credit data
0900 GMT – Eurozone September preliminary CPI figures
0900 GMT – Eurozone August unemployment rate

That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.

World Bank President says global economic slowdown may persist well in 2023

World Bank Group President David Malpass is speaking with US TV, Fox Business.

I’m not sure that saying that the current global economic slowdown may persist well in 2023 is adding too much new to the current pool of knowledge. Energy issues (especially for Europe), global central banks ramping rates higher, China malaise … none of these are fresh issues.

wolrd bank malpass

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