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Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Recession ahead

12/07/2022 | 10:17am EST
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Investors were so focused on the Fed pivot to a dovish monetary policy that they almost forgot that a recession is looming. They got a reality check when the CEOs of Goldman Sachs, Bank of America and JPMorgan Chase said in separate interviews that they were bracing for a downturn, since inflation and the slowing economy will eventually impact consumer spending power.

Yesterday, the US Nasdaq 100 almost erased the 4.6% gains of last Wednesday. The index is still up 10% from the low point of October 13, but momentum is fading.

"Those things might very well derail the economy and cause this mild to hard recession that people are worried about," Jamie Dimon told CNBC, adding that the $1.5 trillion that consumers saved from pandemic stimulus programs should all be spent by the middle of next year.

Bank of America CEO Brian Moynihan said at a Goldman Sachs financial conference that the bank sees recession in early 2023, but the contraction should be mild.

Meanwhile, Goldman Sachs CEO David Solomon told the Wall Street Journal he expected stocks and residential real estate to be lower a year from now, and only gave a 35% chance of a soft landing.

Indeed, the US bond market continues to say that a recession is coming. In bonds there is truth, is one of the stock markets adages. Bonds are historically the most pragmatic marker available.

This comes after the publication of weak economic data from China, where imports dropped 11% in November, while exports fell by 8.7% year-on-year to levels not seen since May 2020.

However, there is still some optimism as the country relaxes its zero-Covid policy. Authorities announced that some asymptomatic and mild cases of Covid-19 can now quarantine at home, instead of having to go to centralized government facilities.

The economic damage of the zero-Covid policy is substantial, as the November trade statistics published yesterday have shown. The authorities are forecasting growth of 5% next year, according to the latest rumors. This may sound high, but it is suboptimal for a country like China. Authorities have advocated a prudent but "focused and aggressive" monetary policy overnight. This means everything and nothing.

Finally, oil is under pressure due to fears of recession, despite the first consequences on supply of the Russian price cap by the West. In this regard, I recommend reading an article from the Financial Times on the oil tankers stuck in the Black Sea, which illustrates very well the consequences of the latest announcements - consequences that were not necessarily expected. It's called How the G7 oil price cap blocked the Bosphorus.

Wall Street is slightly up to start the day. New data from the Labor Department shows U.S. nonfarm productivity rose at a 0.8% annualized rate last quarter, revised up from the 0.3% pace reported last month, and above expectations of a 0.6% pace.

 

Economic highlights of the day:

German industrial production, a new estimate of Eurozone Q3 GDP, US labor cost and productivity data and a monetary policy decision from the Bank of Canada are on the agenda. Earlier today, the Indian central bank raised its main policy rate by 35 basis points to 6.25%, as expected.

The dollar is down to EUR 0.9500 and GBP 0.8195. The ounce of gold is also stabilizing at around 1779 dollars. Oil is up, with North Sea Brent crude at USD 80.19 per barrel and U.S. WTI light crude at USD 74.84. The 10-year US debt yield is little changed at 3.54%. Bitcoin is trading just below USD 17,000.

 

In corporate news:

*Tesla lost 2% in pre-market trading as investors feared a production cut at the U.S. automaker's Shanghai plant.

* Campbell Soup raised its annual revenue and profit forecasts after better-than-expected sales in the first quarter of its off-year.

* Microsoft said it will offer "Call of Duty" on Nintendo systems for 10 years following its acquisition of Activision Blizzard, the publisher of the shooter.

* Mastercard announced a $9 billion share buyback program.

* Southwest Airlines said it has resumed its quarterly dividend program, more than two years after suspending it following the pandemic.

 

Analyst recommendations:

  • Comstock Resources: Citi downgrades to sell from buy. PT down 5.5% to $14.
  • Coterra Energy: Citi downgrades to sell from neutral. PT down 11% to $23.
  • Dominion Energy: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 9.9% to $64.
  • EQT Corp: Citi downgrades to neutral from buy. PT up 8.4% to $40.
  • Expedia: Wolfe Research downgrades to underperform from peerperform. PT down 12% to $85.
  • Hologic: RBC Capital Markets initiated coverage with a recommendation of sector perform. PT set to $75.
  • Illumina: RBC Capital Markets initiated coverage with a recommendation of outperform. PT set to $282.
  • Johnson Matthey: J.P. Morgan upgrades from neutral to underweight with a target of GBp 2000.
  • Lions: J.P. Morgan downgrades to underweight from overweight. PT up 0.6% to $7.
  • PageGroup: Jefferies upgrades from Neutral to Underperform targeting GBp 400.
  • Repligen: RBC Capital Markets initiated coverage with a recommendation of sector perform. PT set to $190.
  • Republic Services: BMO Capital Markets downgrades to market perform from outperform. PT up 8.1% to $148.
  • Southwestern Energy: Citi downgrades to neutral from buy. PT up 8.3% to $6.50.
  • TripAdvisor: Wolfe Research downgrades to underperform from peerperform. PT down 11% to $17.

ę MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ACTIVISION BLIZZARD, INC. 1.34% 76.61 Delayed Quote.-1.24%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.14% 0.7103 Delayed Quote.4.30%
BANK OF AMERICA CORPORATION 0.31% 35.45 Delayed Quote.6.70%
BITCOIN (BTC/EUR) 0.03% 21128.9 End-of-day quote.36.33%
BITCOIN (BTC/USD) -0.25% 23009.2 End-of-day quote.38.49%
BRENT OIL -1.57% 86.05 Delayed Quote.0.27%
BRITISH POUND / US DOLLAR (GBP/USD) -0.13% 1.2397 Delayed Quote.2.60%
CAMPBELL SOUP COMPANY 0.91% 51.13 Delayed Quote.-8.97%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.01% 0.7508 Delayed Quote.1.24%
COMSTOCK HOLDING COMPANIES, INC. -1.05% 4.16 Delayed Quote.-1.08%
COMSTOCK INC. 5.65% 0.52 Delayed Quote.78.98%
COMSTOCK RESOURCES, INC. 0.24% 12.35 Delayed Quote.-10.43%
COTERRA ENERGY INC. 0.28% 25.33 Delayed Quote.2.16%
DOMINION ENERGY, INC. -0.21% 62.45 Delayed Quote.1.63%
EQT CORPORATION -0.51% 32.93 Delayed Quote.-2.16%
EURO / US DOLLAR (EUR/USD) -0.25% 1.08649 Delayed Quote.2.04%
EXPEDIA GROUP, INC. -0.47% 116.18 Delayed Quote.32.92%
GOLDMAN SACHS BDC, INC. 1.42% 15.72 Delayed Quote.12.39%
HOLOGIC, INC. -0.17% 82.79 Delayed Quote.9.21%
ILLUMINA, INC. 0.59% 214.03 Delayed Quote.5.23%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.11% 0.012271 Delayed Quote.1.50%
JOHNSON MATTHEY PLC 0.09% 2162 Delayed Quote.1.55%
LIONS GATE ENTERTAINMENT CORP. 0.91% 7.78 Delayed Quote.35.03%
MASTERCARD, INC. -0.85% 374.03 Delayed Quote.9.97%
MICROSOFT CORPORATION 0.06% 248.16 Delayed Quote.3.41%
NASDAQ 100 0.96% 12166.6 Real-time Quote.10.16%
NASDAQ COMPOSITE 0.95% 11621.71 Real-time Quote.9.99%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.04% 0.6492 Delayed Quote.2.06%
NINTENDO CO., LTD. -0.09% 5630 Delayed Quote.1.86%
PAGEGROUP PLC 1.57% 452 Delayed Quote.-3.51%
REPLIGEN CORPORATION 1.09% 195.15 Delayed Quote.14.02%
REPUBLIC SERVICES, INC. -0.02% 123.85 Delayed Quote.-3.65%
S&P GSCI BRENT CRUDE INDEX -1.01% 735.3201 Real-time Quote.1.59%
S&P GSCI CRUDE OIL INDEX -1.88% 436.6984 Real-time Quote.0.35%
SOUTHWEST AIRLINES CO. 1.51% 36.24 Delayed Quote.6.03%
SOUTHWESTERN ENERGY COMPANY 0.00% 5.56 Delayed Quote.-5.30%
TESLA, INC. 11.00% 177.9 Delayed Quote.30.11%
THE GOLDMAN SACHS GROUP, INC. -0.36% 353.7 Delayed Quote.3.38%
TRIPADVISOR, INC. 1.26% 23.37 Delayed Quote.27.81%
US DOLLAR / CANADIAN DOLLAR (USD/CAD) -0.08% 1.3307 Delayed Quote.-1.16%
WELLS FARGO & COMPANY 0.68% 46.12 Delayed Quote.9.81%
WTI -2.02% 79.45 Delayed Quote.0.09%
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