Recession talk on the rise again
EDITOR'S NOTE
Remember December, when recession anxiety reached a climax, only for the U.S. to go on and post 3% growth in the first quarter? It feels like we're back to that.
My inbox is full of "r" talk this morning. "Recession alert on UK data." "US manufacturing PMI lowest since 2009." "German bunds hit record low." "J.P. Morgan slashes US yield forecasts." "Morgan Stanley: yield curve inversion. This time pay attention."
And for sure, there's been a sentiment shock from all the tariffs, on top of slowing global growth. Keep in mind, those PMI (purchasing managers index) surveys, like Markit's flash manufacturing gauge this morning, are sentiment-based, not real data. Often, sentiment shocks are followed by the data softening--but not always. Remember the great Philly Fed plunge of 2011? I actually still do. It came amidst the European debt crisis and totally spooked everyone...for a little while.
But what really happens, as we see time and again, is that if the outlook gets dark enough, the central bank(s) respond(s). Hence the "Powell pivot" from late December/early January that paved the way for the market's rip-roaring start to 2019. It helped, of course, that the real U.S. economy was meanwhile chugging along just fine.
And that's still the case, despite the awful weather and tariff hits. Jobless claims are still near historic lows. Construction spending turns out to have been better than thought in March, and decent enough in April, to boost Q1 GDP back up to 3.2% and Q2 to 2.7%, per Amherst Pierpont's Stephen Stanley.
Plus, May auto sales, Stanley adds, look like they've rebounded back above a 17 million run rate. I was actually moderating a chat with the CEOs of Marriott, Hyatt, IHG, Choice Hotels, and Accor this morning, and none of them were talking about a U.S. downturn.
Point being, this goes one of two ways. Either the data weakens and markets throw a fit until Powell--who is speaking tomorrow morning--opens the door to a rate cut (now 85% priced in for September, per Deutsche Bank), or the data firms up enough that he doesn't have to.
We have Michael Gapen of Barclays--who is now calling for three rate hikes, starting in September--on today (not to mention the CEO of Boeing, and live coverage of Apple's developer's conference). I'll be sure to ask him about all this.
See you soon!!
Kelly
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