Goldman Now Says the Euro Area Will Avoid a Recession

Inflation easing to 3.25%

Economists at Goldman Sachs no longer predict a euro-zone recession after the economy proved more resilient at the end of 2022, natural gas prices fell sharply and China abandoned Covid-19 restrictions earlier than anticipated.

Gross domestic product is now expected to increase 0.6% this year, compared with an earlier forecast for a contraction of 0.1%. While growth will still be weak during the winter due to the energy crisis, the first quarter of 2023 will likely see expansion of 0.1%, according to economists led by Jari Stehn.

They also see inflation easing faster than thought — to about 3.25% by end-2023.

https://www.bloomberg.com/

The International Monetary Fund  expects a third of the world’s economies to slip into recession this year

Brent crude has crashed from over $82 per barrel to some $78

After a sharp drop in the first trading days of the new year, oil prices are climbing back up but the upside potential remains limited in light of the latest economic news updates and a warmer-than-usual winter in the northern hemisphere. After crashing from over $82 per barrel to some $78, Brent crude is today on the mend, inching closer to $79 and West Texas Intermediate is moving to $74. However, the economic outlook is quite bearish.

First, earlier this week, the head of the International Monetary Fund said she expected a third of the world’s economies to slip into recession this year. This immediately weighed on prices and will continue to depress them in the absence of any evidence that counters this outlook.

Then, the December reading of the U.S. purchasing managers index turned out to be lower than expected, at 48.4 versus an expected 48.5. Despite the minor difference, it was enough to deepen the economic gloom that features expectations of weaker oil demand, not least because it was the second consecutive month of declines.

Meanwhile, covid infections are on the rise in China and worry abounds that this will delay the recovery of the global economic powerhouse despite the government’s U-turn on its zero-Covid policy.

https://oilprice.com/

Oil falls over 3%

Data raises Fed interest rate worries 

Oil prices fell over 3% on Monday, following U.S. stock markets lower, after U.S. service sector data raised worries that the Federal Reserve could continue its aggressive policy tightening path.

Brent crude futures settled down $2.89, or 3.4%%, at $82.68 a barrel. West Texas Intermediate crude (WTI) fell $3.05, or 3.8%, to $76.93 a barrel. Both benchmarks had earlier risen more than $2, before reversing direction.

During the session, WTI’s front-month contract began trading lower than prices in half a year , a market structure called contango, which implies oversupply. U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.The news caused oil and stock markets to pare gains.

https://www.reuters.com/

Russia finally falls into recession

Western sanctions lead to a 4% fall in GDP nine months after Putin invaded Ukraine 

Russia has entered a recession, nine months after launching its offensive in Ukraine as Western sanctions weigh on the economy, according to official data. Gross domestic product shrank four percent in the third quarter, according to a preliminary estimate by the national statistics agency Rosstat on Wednesday. As that follows one of the same size in the second quarter, Russia now meets the technical definition of a recession with two consecutive quarters of falling GDP.

Western sanctions have limited exports and imports, including of key manufacturing components and spare parts. Companies have also been suffering from a lack of staff as a Vladimir Putin’s partial mobilisation has taken several hundred thousand men out of the workforce. However, the four percent drop in economic output between July and September was less than the 4.5 percent contraction many analysts had expected. The contraction was driven by a 22.6 percent plunge in wholesale trade and a 9.1 percent drop in retail trade. Meanwhile, construction grew by 6.7 percent and agriculture 6.2 percent.

https://www.dailymail.co.uk/

Powell Signals Recession May Be Price to Pay for Crushing Inflation

50 basis point hike possible for May

Federal Reserve Chairman Jerome Powell affirmed the central bank’s determination to bring down inflation and said Thursday that aggressive rate hikes are possible as soon as next month.

“It is appropriate in my view to be moving a little more quickly” to raise interest rates, Powell said while part of an International Monetary Fund panel. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. … I would say 50 basis points will be on the table for the May meeting.”

Powell’s statements essentially meet market expectations that the Fed will depart from its usual 25 basis point hikes and move more quickly to tame inflation that is running at its fastest pace in more than 40 years. A basis point equals 0.01 percentage point. However, as Powell spoke, market pricing for rate increases got somewhat more aggressive.

Expectations for a 50 basis point move in May rose to 97.6%, according to the CME Group’s FedWatch Tool. Traders also priced in an additional hike equivalent through year’s end that would take the fed funds rate, which sets the overnight borrowing level for banks but also is tied to many consumer debt instruments, to 2.75%.

https://www.cnbc.com/

Fed hikes interest rates by 0.75 percentage point

Objective: to tamp down runaway inflation without creating a recession

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s. While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting. Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.

https://www.cnbc.com/

Oil Capitulates On Global Recession Fears

Chinese demand concerns continue to put downward pressure on markets.

Breaking through new technical levels, Brent crude has plummeted nearly 4.6%, below $90, and WTI has plunged to $82, shedding over 5%, as fears of global recession appear to be driving the oil markets into a longer-term spiral downwards.

As of 12:40 p.m. EST, Brent crude is trading down 4.57% at $88.59 per barrel for a $4.24 change on the day. WTI was trading down 5.01% at $82.53, for a change on the day of $4.35. There are no breaking developments driving prices downward, and no new data releases that would normally weigh on oil prices. Any rally in oil prices now is treated with skepticism by traders, rendering upswings brief.

“Energy traders appear to be skeptical of any rallies as they digest a plethora of global economic challenges, a wrath of uncertainty to supplies, and looming crude demand destruction fears,” Oanda senior market analyst Ed Moya told Bloomberg.

https://oilprice.com/

Business executives remain bullish

Companies are increasing investments in the face of a looming recession, growing geopolitical tensions and ongoing workforce concerns

With increasing economic uncertainty, 83% of executives are focusing their business strategy on growth, according to the latest PwC Pulse: Managing business risks in 2022. That uncertainty has become the standard with business leaders feeling cautiously optimistic about their ability to navigate future economic, social and geopolitical uncertainty.

“On the whole, this generation of corporate leaders have minimal experience navigating a recession, yet with the possibility of one looming amid increasing geopolitical divides and skyrocketing inflation, they are bullish on their ability to handle what could be ahead,” said Kathryn Kaminsky, vice chair – Trust Solutions co-leader, PwC US. “The last several years have tested resilience and agility, hardening businesses and testing their leadership teams. Looking forward, executives will need to continue adjusting their business strategy and investments to mitigate risks and capitalize on growth opportunities.”

Executives continue to have significant risks on their radar. Amid increasing geopolitical tensions and consumer privacy concerns, business leaders (40%) ranked cybersecurity as the number one serious risk facing their companies. It’s not just top of mind for Chief Information Security Officers and Chief Risk Officers—executives across the entire C-suite ranked cybersecurity as a serious risk. In addition, 58% of corporate directors said they would benefit most from enhanced reporting around cybersecurity and technology.

https://www.pwc.com/

Walmart results relieve some recession fears

Rosier picture of consumer spending

Walmart had good news Tuesday for investors and economists worried about a looming recession, as the retail giant gave a much rosier picture of consumer spending than it offered less than a month ago.

On July 25, Walmart warned about its earnings for the rest of the year, saying that high fuel and food prices were prompting consumers to cut back on other spending, forcing the chain to cut prices on some non-essential goods, such as clothing, electronics and home goods. The earnings warning was seen as another sign of growing weakness for the economy overall.
But Tuesday the nation’s largest retailer said it got a good customer response from those price cuts last quarter. Although Walmart continues to expect earnings will fall in the second half of the year, it now predicts a smaller drop in profit going forward than it had previously expected. Earnings per share for the year are expected to drop 8% to 10%, excluding divestitures, but that’s better than the 10% to 12% drop it forecast on July 25.

https://edition.cnn.com/

WTI Oil Dips Below $90

First Time Since Ukraine War Began

The U.S. crude oil benchmark dipped early on Thursday to the lowest level in months, falling below $90 a barrel for the first time since Russia invaded Ukraine at the end of February.

As of 10:30 a.m. ET on Thursday, the U.S. benchmark WTI Crude had fallen by 1.16% on the day and traded at $89.58. The international benchmark, Brent Crude, was also down and trading below $100 per barrel for a second consecutive day, amid a global economic slowdown and fears of recession, which could dent demand growth this year compared to last year. Brent had dropped by 1.44% to $95.36 at 10:30 a.m.

Moreover, the tightness in physical crude markets seems to have eased in recent days, with spot deliveries being traded at smaller premiums. Oil prices settled 4% lower on Wednesday, to levels seen just before the Russian invasion of Ukraine, after the U.S. Energy Information Administration reported a large build in crude oil inventories of 4.5 million barrels for the week to July 29.

https://oilprice.com/

Fed hikes interest rates by 0.75 percentage point for second consecutive time

Objective: fight inflation

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

https://www.cnbc.com/

Oil Bears Are Back

The Crude Crash Continues

Oil traders are selling oil again as concern about the course of the global economy deepens, taking the upper hand over supply fears.

Brent crude has lost more than $20 per barrel over the past month, with West Texas Intermediate down by nearly $25 per barrel at the time of writing. Recession fears appear to be the biggest driver of the price decline, with demand still robust despite prices.

Meanwhile, hedge funds are selling their oil, Reuters’ John Kemp reported in his weekly column on oil market moves. In the week to July 5, they sold the equivalent of 110 million barrels of crude oil and fuels across the six most traded contracts.

This has brought the total volume sold across these contracts to a little over 200 million barrels over the past four weeks, Kemp noted. The acceleration in selling over the week to July 5 becomes even more notable in the context of the four-week total.

Forecasts of a recession, specifically in the United States, are multiplying. The latest this week came from TD Securities, which said that the odds of the U.S. falling into a recession by the start of 2023 are over 50 percent.

https://oilprice.com/

Copper Spirals to 19-Month Low

Recession Fears Dominate

Copper fell to its lowest price in 19 months, with metals extending losses as global recession fears continue to damp the demand outlook for commodities.

Sentiment remains sour for industrial materials used in everything from construction to new energy vehicles. Copper, widely considered an economic bellwether, is trading well below $8,000 a ton after metals posted their worst quarterly slump since the 2008 financial crisis.

“Sentiment in US industry is becoming more gloomy, in other words; we interpret this as a sign that the US economy is losing momentum,” Commerzbank AG analyst Carsten Fritsch said in a report. “Concerns about a global recession continue to predominate on the metals markets.”

The chances of a US recession are now 38%, according to the latest forecasts from Bloomberg Economics.

https://www.bloomberg.com/

The US economy shrank 1.6% in the first quarter

First quarter of 2022 marked the start of Russia’s invasion of Ukraine

The US economy shrank at a slightly faster rate than previously estimated during the first quarter, the Bureau of Economic Analysis said Wednesday.With one quarter of negative economic growth in the books, the data adds to fears that a recession may be looming. Real gross domestic product declined at an annualized rate of 1.6% from January to March, according to the BEA’s third and final revisions for the quarter.

Previously, the advance estimate released in April showed a contraction of 1.4%. Last month, that was revised to a decrease of 1.5%.

The first quarter GDP performance, which the BEA noted includes some unquantified effects from the pandemic and the Omicron variant surge, stood in contrast to the fourth quarter of 2021, when the economy grew at a rate of 6.9% from the prior quarter.

The first quarter of 2022, however, marked the start of Russia’s invasion of Ukraine, which sent economic shockwaves throughout the global supply chain, as well as the food, finance and energy markets.Domestically, US inflation has soared to levels not seen in decades amid ongoing supply chain challenges, rising costs for commodities and labor and spiking oil prices.

https://edition.cnn.com/

Oil prices could slump to $75 a barrel in a recession

For now analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022

Oil prices could surge higher or plunge lower depending on what happens next in global markets, according to Bank of America. Mounting fears of a recession have sent crude prices to their second consecutive weekly decline, but they remain above $100 per barrel amid still-high demand and constrained supply, while inflation, hawkish central banks and war still loom.

“Surging inflationary pressures from food to energy to services, coupled with fast paced interest rate hikes, suggest oil demand will struggle to fully recover to pre-pandemic levels until next year,” analysts wrote in a recent note. The various crosscurrents and risks left BofA with a wide range of possibilities. For now, analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022 and 2023, after averaging about $104 for the year to date.

On Friday, Brent oil rose 2.6% to nearly $113 per barrel, but is down from a high of $133 reached in March. A recession, however, would trigger a pullback in fuel consumption, and oil prices could crash more than 30% from current levels, according to BofA’s estimates. If growth does go south, any easing in monetary policy from central banks would support oil prices somewhat. So even in the event of a recession in 2023, BofA sees crude averaging more than $75 a barrel.

https://finance.yahoo.com/