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The ink is barely dry on global growth forecast downgrades from the World Bank and International Monetary Fund, but banks are rushing out their own gloomy assessments.
“Prepare for a hard landing,” Deutsche Bank (ETR:DBKGn) shrilled in a Wednesday report. Flagging the possibility of a Fed funds rate in the 4.5-5% range and euro zone rates at 2-2.5%, Deutsche chief economist David Folkerts-Landau said a late-2023 U.S. recession was now a baseline scenario.
Goldman Sachs (NYSE:GS), meanwhile, warns the Fed faces “a hard path to a soft landing”.
The forward indicators in Friday’s PMI data may signal how bad purchasing managers expect things to get. In the meantime, watch bond markets, which JPMorgan (NYSE:JPM) predicts will react if softening economic growth prices out some rate hikes.
Treasury 10-year yields slumped 11 basis points on Wednesday, while the 2-year/10-year yield curve — that well-known recession indicator — has flattened back to around 25 bps.
Some of that fall is being reversed on Thursday, but equity markets are higher — in fact, Nasdaq futures are up half a percent following robust earnings from Tesla (NASDAQ:TSLA).
In fact, the earnings season is chugging along nicely, which made the Netflix (NASDAQ:NFLX) report such a shocker — declining subscriber numbers sent shares almost 40% lower on Wednesday, rippling out across the entire streaming sector, from Disney to Spotify (NYSE:SPOT).
In the euro zone, consumer confidence readings dived further in April, readings show on Thursday.
Central banks are, for now, showing little inclination to dial back rate hike expectations; the normally dovish San Francisco Fed chief Mary Daly said the case for a 50 bps May rate hike was “complete”.
The big three of the central banking world – Bank of England Governor Andrew Bailey, ECB President Christine Lagarde and Fed chairman Jerome Powell — speak on an IMF panel on Thursday. Their view on the growth/inflation trade-off will be closely monitored.
Key developments that should provide more direction to markets on Thursday:
-Eurozone final March HICP; flash consumer confidence
-Russian central bank head Elvira Nabiullina addresses Duma.
-U.S. initial jobless claims/Philadelphia Fed business index.
-U.S. TIPS auction
-European earnings: Nestle confirms margin and sales growth targets for 2022; ABB posts ‘promising’ start to 2022 with big jump in orders; Anglo American (LON:AAL) cuts production guidance after 10% Q1 drop
-U.S. earnings: Dow Chemicals, Philip Morris (NYSE:PM), AT & T, Blackstone (NYSE:BX), Alaska Air (NYSE:ALK), American Airlines (NASDAQ:AAL)
