CoreMacro
| Global
Global macro research on the forces driving the world economy, with calls across stocks, bonds, and currencies.
After resisting the consensus narrative in 2022 that a US recession was imminent, and then predicting an immaculate disinflation for 2023, the Global Investment Strategy team has joined the dark side and is now expecting a recession to start in the US within the next six months. Accordingly, we recommend that investors underweight stocks and overweight government bonds.
The Chinese government had no choice but to act this week. Housing starts are down 65% from their peak.
In my view, the revisions resolve a big puzzle that has developed over the past two years, which is how employment growth could have been so strong while personal income growth was so weak. Well, as it turns out, income growth was quite strong too.
Two days ago, I flagged how the number of people in the US who are working part time but would rather be working full time is rising, which usually only happens in the early stages of recessions.
The S&P Global flash PMIs released yesterday showed that the contraction in manufacturing activity accelerated on both sides of the Atlantic in September. The forward-looking new orders component fell to a 9-month low of 42.3 in the euro area and a 21-month low of 42.7 in the US.
The US suffers from enough imbalances to produce a mild recession. Unfortunately, such a recession could lead to a significant bear market in stocks, just as it did during the very mild 2001 recession.
The great US labor market shortage is over. Labor demand will likely fall short of supply by the end of this year, causing unemployment to soar. Neither fiscal nor monetary policy will be able to prevent the coming recession. Investors should underweight stocks and overweight Treasuries.
