October 28, 2019
Fed, Consumers Turn a Deaf Ear to Wall Street’s Recession Siren
“Federal Reserve Chairman Jerome Powell’s disagreement with Wall Street over recession risks is backed up by data showing that much of the talk is concentrated in a few industries with big megaphones — manufacturing and banking. Powell has repeatedly said that the wider U.S. economy is still in a good place. He’ll likely do so again after a Fed meeting this week — at which it is widely expected to cut interest rates for the third-straight time — while signaling he doesn’t see grounds for much more easing. An analysis by Prattle, a company that uses natural-language processing to analyze linguistic trends, shows that in the last few months companies in the financial services industry have been talking about recession more frequently than those in any other sector. Prattle studies public remarks by central banks and corporations, including earnings calls, speeches, regulatory filings and other communications. Powell’s message is partly aimed at the economy’s grave dancers — analysts who have been obsessed with recession risk in recent months. Narratives shape beliefs and beliefs guide actions. Fed officials understand that letting recession concerns spread further is a risk in itself. “They are concerned about self-fulfilling expectations,” says Stephen Gallagher, U.S. chief economist for Societe Generale SA who forecasts a recession in the middle of 2020. “They are trying to tell CEOs that things are better than imagined.” In some ways, it makes sense. There’s big money to be made by timing an economic cycle correctly, and Wall Street firms have hired an army of analysts to call turns. “Wall Street loves talking about recession,” says Drew Matus, chief market strategist for MetLife Investment Management. “Once one person says there might be a recession, the next person gets asked, ‘When do you expect the recession?’” But chatter can get woven into stories that begin to change behavior. Fed officials have good reasons to lean against the recession theme, partly because nobody is really expecting one. The majority of the more than 60 economists surveyed by Bloomberg don’t foresee two quarters of contraction between now and the end of 2020. “Recessions don’t happen just because you feel worried,” says Rajeev Dhawan, a professor at Georgia State University who has studied business cycles for decades. “If you look at the last few recessions, we were entering slow-speed areas — then we were shocked.” ”
Winter U.K. Election Looms as EU Agrees Extension: Brexit Update
“The European Union agreed to grant the U.K. a three-month Brexit delay to Jan. 31, removing the risk of a damaging no-deal split on Thursday as the British government tries to end the impasse in Parliament. Prime Minister Boris Johnson is pushing a vote in the House of Commons on Monday to trigger an early general election, saying it’s the only way to resolve the deadlock that has stopped the U.K. ratifying his divorce deal with Brussels and prolonged the uncertainty for businesses as Brexit drags on. EU Council President Donald Tusk announces delay in tweet; says decision will be formalized without a leaders’ summit. French President Emmanuel Macron dropped his opposition to three-month delay, paving way for EU agreement. Johnson needs a two-thirds majority in Parliament to win Monday’s vote on holding an early general election; Johnson is due to open the debate at about 5:30 p.m., with the vote at about 7 p.m. Opposition Labour Party leader Jeremy Corbyn said he won’t vote for an election until the U.K. is no longer at risk of crashing out of the EU without an agreement. Liberal Democrats, Scottish National Party are working together to try to force a snap poll on Dec. 9, reflecting a split with Labour. Pound rises as much as 0.3% before paring gains.”
China’s Slowdown Rolls On Into October, Early Indicators Show
“China’s third-quarter slowdown continued into October, with only a few signs of stabilization evident amid the weakest pace of expansion in almost thirty years. Bloomberg Economics’ gauge aggregating the earliest available indicators from financial markets and businesses showed the economy cooling for a sixth month, with indicators for trade, factory prices, iron ore and copper all worsening. Easing tensions with the U.S. in September and October are too recent to have any effect on trade, which continues to worsen on slowing global demand and the effects of the tariff war. South Korean exports in the first 20 days of October, a leading indicator for intra-Asian trade and for the tech cycle, dropped almost 20%, extending their decline to 10 months. Factory prices dropped faster than in September, according to Bloomberg’s producer price tracker, which was at the lowest since mid-2016. The tracker is a leading indicator for the official price data, which is due early next month, and shows that there will be no immediate improvement to the price declines which hurt both company profits and their ability to repay debt. Solid signs of stabilization remain elusive. Sales managers were the most confident they’ve been in 19 months, though sub-indices including market growth and staffing indicate still-weak activity, according to World Economics, which compiles the data. Data for small and medium-sized companies did show signs of improvement in October, according to Standard Chartered Plc.”
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