Monday Morning Reads
- Debt Woes Across Developing World
- BOJ’s Kuroda Steps Up Warning
- China’s Economic Trends Hint at Cost of Zero Covid Strategy
- Beijing Crackdown
- Gold Rises to Five-Week High
- The Next Hurdle
- Utilities Want to Convert Coal Plants to Nuclear
- Rivian’s New Factory, Constrained by Chips, Is Off to Slow Start
- Jim Farley Tries to Reinvent Ford
- Monetarism Imagines a World That Doesn’t Exist…
- Small Businesses Object to Clawback of Covid-19 Aid
- The Sky-High Pandemic Housing Market
- Stop Investors from Buying Houses to Rent
The Goldman Sachs economics team says that there is now a 35% chance of a U.S recession over the next two years, with the labor market a particular problem for the Federal Reserve. The large gap between jobs and workers, which keeps wage growth elevated, has historically only declined during periods of economic contraction, chief economist Jan Hatzius and team wrote in a note out on Sunday. Predictions for a recession have been growing as the Fed tries to negotiate a soft landing for the economy at a time when inflation is at a level not seen in four decades.
Deutsche Bank was the first big Wall Street bank to forecast a recession, saying in the first week of April a recession in late 2023 is now their base case.
Quotes: “Taken at face value, these historical patterns suggest the Fed faces a hard path to a soft landing,” Hatzius said, according to Bloomberg. But other strategists are more cautious.
Wells Fargo stock strategist Chris Harvey said in a note last week that despite "daily calls for a recession from anyone with a megaphone, we do not expect one of the next 12 months. Rather, stagflation (high inflation/slower growth) likely will prevail."
Credit Suisse says it is not underweight equities (SPY) (QQQ) because: "i) equities are fair value (not overvalued) with equities being an inflation hedge compared to bonds; ii) monetary conditions are very loose; iii) we only tend to get recessions 9 months after 3-month money inverts relative to 10-year."
Go deeper on yields: The Fed's hawkish signaling, with 50-basis-point rate hikes expected over the next few meetings has sent Treasury yields sharply higher. An inversion in the 2-year and 10-year Treasury yield curve was pointed to as a signal of an upcoming recession. But the inversion was short-lived and that curve has started steepening again.
Yields are up again and the 2s/10s are steepening again this morning. The 10-year Treasury yield (TBT) (TLT) is up 6 basis points to 2.87% and the 2-year (SHY) is up 5 basis points to 2.49%. Real rates, which the Fed also wants to see rise, are climbing as well, with the 10-year inflation-protected yield about 10 basis points away from positive territory.
"Despite the embarrassing panic about the wrong yield curve measures flattening/inverting earlier this year, the curves that actually forecast recessions remain steep and have been steepening," MKM's Michael Darda said in a note.
"The long Treasury rate (or 10-year Treasury yield) minus the 3-month Treasury bill yield has inverted before every recession since the mid-1950s." That spread is now around 200 basis points. Still, traders see little respite from the bond selloff in the near term. “We’re coming out of one of the worst quarters in history ... and the big bear market in bonds continues,” Thanos Bardas, global co-head of investment grade at Neuberger Berman, told The Wall Street Journal. (7 comments)
Elon Musk appeared to hint at a possible tender offer for Twitter (TWTR) in a tweet on Saturday. Musk tweeted "Love Me Tender" in a cryptic tweet that is not only a famous Elvis Presley song but also may refer to a potential tender offer directly to shareholders he could make for the social media platform that he offered to buy for $43B on Thursday.
The Musk tweet comes after Twitter on Friday announced it adopted a shareholder rights plan - a "poison pill" designed to keep control in the company from being consolidated in the wake of Musk's surprise effort to take control of the company. The board unanimously adopted a poison pill that's exercisable if any one entity acquires beneficial ownership of 15% or more of Twitter common stock in a transaction unapproved by the board. (55 comments)
Six people were reported dead as Russia aimed strikes on the western Ukrainian city of Lviv. Plumes of black smoke were seen, believed to be caused by missiles, the Associated Press reported. Meanwhile, the port city of Mariupol looked set to fall to Russian forces after Ukrainians refused to surrender by a Sunday deadline set by Russia. (1 comment)
Starting Monday, the CDC is changing its Travel Health Notice System for COVID-19 with the biggest impact being that fewer countries will end up classified under the highest level. Countries listed under Level 4 - the highest level - are deemed by the CDC to have a very high level of COVID incidence and should be avoided by all travelers, even if fully vaccinated and boosted.
The agency said that Level 4 will be reserved for "special circumstances, such as rapidly escalating case trajectory or extremely high case counts, emergence of a new variant of concern, or healthcare infrastructure collapse." (7 comments)
Ride-sharing giant DiDi Global (DIDI) has set May 23 for a shareholder vote on its plans to delist from the New York Stock Exchange. DiDi won't apply for listing of its shares on any other stock exchange before completion of the delisting, according to a statement on Saturday. Shareholders of record as of April 28 will be able to vote at the annual meeting. The board and the company will continue to explore potential listing on another exchange outside the U.S.
In December, DIDI said it planned to delist its shares from the NYSE over concerns expressed by Chinese regulators that its operations were leaking sensitive data. The company said it would instead pursue a listing on the Hong Kong market. (15 comments)
In Asia, Japan -1.1%. Hong Kong closed. China -0.49%. India -2.15%.
In Europe, at midday, London closed. Paris closed. Frankfurt closed.
Futures at 6:20, Dow -0.22%. S&P -0.40%. Nasdaq -0.53%. Crude -0.94% to $105.95. Gold +1.07% to $1996.1. Bitcoin -3.8% to $38,904.22.
Ten-year Treasury Yield +5.8 bps at 2.866%
Today's Economic Calendar
10:00 NAHB Housing Market Index
4:00 PM Fed's Bullard: U.S. Economy and Monetary Policy