{"id":1406506,"date":"2023-08-17T12:20:00","date_gmt":"2023-08-17T16:20:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1406506"},"modified":"2023-08-17T12:20:00","modified_gmt":"2023-08-17T16:20:00","slug":"looser-financial-conditions-take-edge-off-recession-risk","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/looser-financial-conditions-take-edge-off-recession-risk\/1406506\/","title":{"rendered":"Looser Financial Conditions Take Edge Off Recession Risk"},"content":{"rendered":"

Looser Financial Conditions Take Edge Off Recession Risk<\/span><\/p>\n

\n

Authored by Simon White, Bloomberg macro strategist,<\/em><\/p>\n

The stock rally has loosened financial conditions sufficiently to pare back a little near-term recession risk.<\/p>\n

A recession in the US by the end of the year is still the base case.<\/strong><\/p>\n

The\u00a0Recession Gauge, an indicator consisting of 14 recession sub-models, continues to infer a slump is more likely than not, with half the sub-models currently activated (the threshold for a recession is 40%).<\/p>\n

But the stock market has risen this year in defiance of weak data. As the chart below shows, the S&P normally has a very close relationship with the outperformance of leading versus coincident data.<\/strong> But this year stocks have rallied despite still-weak leading data (which includes the yield curve, building permits, average weekly hours worked, unemployment claims, etc).<\/p>\n

<\/a><\/p>\n

George Soros\u2019 reflexivity\u00a0has played a part here.<\/strong> Markets and economies interact in myriad ways, sometimes reinforcing each other negatively, sometimes positively.<\/p>\n

The stock market is the main driver of financial conditions (as conventionally measured). Thus the rally has loosened financial conditions that were at a tightness normally consistent with an oncoming recession. The easing in financial conditions has been sharp enough to reduce recession risk.<\/strong><\/p>\n

<\/a><\/p>\n

Thus an improvement in the financial economy may be having a material positive impact, through sentiment and the wealth effect, on the real economy.<\/p>\n

These leaves two questions<\/strong>:<\/p>\n

will a recession be averted altogether, and<\/p>\n

what is the outlook for stocks?<\/p>\n

As mentioned, a recession is still the base case. The job market continues to slow, and other markers of growth, such as\u00a0retail sales, are also not in great shape<\/strong>, despite ebullient month-on-month data.<\/p>\n

Such slowdown signs are likely to rein the Fed in, even as inflation begins to show signs of stickiness or\u00a0a re-acceleration. Pressure would come off real rates after the sharp tightening they have seen, keeping stocks relatively supported (at least in nominal terms) despite the signs of economic slowing.<\/p>\n

One risk factor to bear in mind is credit.<\/strong> All bets on a mild recession, or one being avoided altogether, would be off if the credit markets were to face\u00a0serious turbulence.<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nThu, 08\/17\/2023 – 08:20<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/looser-financial-conditions-take-edge-recession-risk<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Looser Financial Conditions Take Edge Off Recession Risk Authored by Simon White, Bloomberg macro strategist, The stock rally has loosened financial conditions sufficiently to pare…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-1406506","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbimBl-5TTA","jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1406506","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1406506"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1406506\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1406506"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1406506"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1406506"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}