And another thing … recession, how much EASING, ISM and GDP (prolly nuthin’…)
In addition to what the sellside is selling (earlier), a few words and a chart from a rather large German bank reiterating some of their ideas and conclusions…
… It's all about recession now, argues George Saravelos. Last week marked a regime shift in the market: moving away from higher inflation to imminent recession risk. US GDP trackers for Q2 have now turned negative meaning the US economy may already be meeting the definition of a technical recession. Key for markets is that the central bank pivot won't come until the labour market slows, even if goods inflation decelerates first. It may only be a matter of time, but that is the key variable.
To that end, Steven Zeng quantifies how much Fed easing is now priced in, and finds that over the past month, post-peak easing has grown from less than 50bps to 80bps, an unwind of roughly 25% of the cumulative rate increases this cycle: in line with the soft landing in 1995, slightly less than the 2019 mid-cycle adjustment.
For long rates, Steven argues that the dominant driver this year has been repricing of a higher terminal rate, but rate cut expectations are now becoming a bigger offsetting factor.
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