Digital Finance Analytics (DFA) Blog – Page 98

The Risks Are Building They Say…

You thought 2022 was bad, with surging inflation, war in Ukraine, China’s slowdown, well economists seem to be lining up to suggest that 2023 could be even worse. On Tuesday IMF cut its forecast for worldwide growth in 2023 and said that policies to tame high inflation may add risks to the global economy. In their press conference the mood was, well, downbeat and concerned.

Bank of Spain Governor Pablo Hernandez de Cos said that some of the shocks in the European Central Bank’s downside scenario “may have materialized.” The ECB had published two different scenarios at its last meeting in October — a baseline and a downside version that foresaw stronger inflation and a contraction in economic output in 2023. Still, de Cos noted that energy prices are lower than in the central scenario.

The uncertainty justifies the ECB’s decision to abandon forward guidance and take a meeting-by-meeting, data dependent approach, he said, speaking at the Institute of International Finance conference in Washington. Asked about the implications of the latest market rout in the UK, de Cos said “if it’s properly managed, it shouldn’t be contagious.”

European Central Bank President Christine Lagarde said policy makers are determined to bring down inflation and argued that cooperation with other monetary authorities and fiscal policy is necessary to succeed.

“We need to have cooperation among ourselves — central bankers — to understand what the spillovers will be, what the spill backs could be, what impact we have on each other and what ramifications it will take because financial markets are extremely integrated and because our respective monetary policies have an impact on other countries around the world beyond,” Lagarde said at an event hosted by the Institute of International Finance.

“We also need to have cooperation between monetary policy and fiscal policy,” she said. “We have to act in a cooperative way because if we don’t, then monetary policy is going to have to be even more determined and and more decisive in its fight against inflation.”

Treasury Secretary Janet Yellen cited concerns about the potential for a breakdown in trading of US Treasuries, as her department leads an effort to shore up that crucial market.

“We are worried about a loss of adequate liquidity in the market,” Yellen said Wednesday in answering questions following a speech in Washington. The balance-sheet capacity of broker-dealers to engage in Treasuries market-making hasn’t expanded much, while the overall supply of Treasuries has climbed, she noted.

Even President Joe Biden said this week that the US, the world’s biggest economy, could suffer a “very slight” recession.

The producer price index for final demand climbed 0.4% from August, the first increase in three months, and was up 8.5% from a year ago, Labor Department data showed Wednesday.

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DFA Live Q&A HD Replay Economics Now With Leith van Onselen

This is an edited version of a live discussion about the current economic outlook with Leith van Onselen, Chief Economist at Nucleus Wealth and Co-founder of Macrobusiness.

Links to upcoming events: Meet the Managers Forum Wednesday 19/10/22 6:30-8pm:

https://www.eventbrite.com/e/meet-the-managers-tickets-410294761677?aff=wtw%20to%20register.

Go to the Walk The World Universe at https://walktheworld.com.au/

Credit Suisse Has A Problem!

A quick update on one of the GSIB’s with the potential to create instability waves across the financial system.

Go to the Walk The World Universe at https://walktheworld.com.au/

Plan For More Falls Ahead…

When JPMorgan Chase & Co Chief Executive Jamie Dimon said the United States and the global economy could tip into a recession by the middle of the next year, its time to adopt the brace position.

“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said.

He said the S&P 500 could fall by “another easy 20%” from the current levels, with the next 20% slide likely to “be much more painful than the first”.
Runaway inflation, big interest rates hikes, the Russian invasion of Ukraine and the unknown effects of the Federal Reserve’s quantitative tightening policy are among the indicators of a potential recession, he said in an interview to the business news channel.

Earlier this year, Dimon had asked investors to brace for an economic “hurricane”, with JPMorgan, the biggest U.S. investment bank, suspending share buybacks in July after missing quarterly Wall Street expectations.
In June, Goldman Sachs had predicted a 30% chance of the U.S. economy tipping into recession over the next year, while the economists at Morgan Stanley placed the odds of a recession for the next 12 months at around 35%.

“We continue to expect that the Fed will hike by 75bp in November, 50bp in December, and 25bp in February to reach a terminal forecast of 4.5-4.75%,” Goldman Sachs said in a note.

Fed vice chair Lael Brainard said Monday that a “second-half rebound will be limited, and that real GDP growth will be essentially flat this year.” The slowing growth, however, doesn’t appear to be dissuading the Fed from its path of monetary policy. “Monetary policy will be restrictive for some time to ensure that inflation moves back” to the central bank’s 2% target,” Brainard added.