Recession risks abound and the mood at this week’s IMF meetings in Washington D.C. was downbeat as people expect central banks to keep pressing the break until something actually breaks in the expansion. But timing matters and the near-term drop in headline inflation is pointing to resiliency more so than fragility. While financial tightening risks morphing into outright stress in areas that are hard to foresee, the biggest risk remains a central-bank induced recession that takes shape much further down the road (like 12-18 months from now).

Speakers:

Bruce Kasman

Joseph Lupton

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

The latest surveys for September show the global expansion slowing but continuing. In the US, strong job growth (albeit a moderation) makes the case for a 75bp hike at the next Fed meeting.

Speakers: 

Bruce Kasman

Joseph Lupton

This podcast was recorded on October 7, 2022.

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2021 JPMorgan Chase & Co. All rights reserved.

Turmoil in UK markets this week raises the specter of broadening financial stress beyond its shores. We fade this concern owing to the lack of imbalances that tend to amplify such shocks. However, those same strong fundamentals keep us focused on the key threat to the global expansion: central banks that need to press the breaks a lot more than anticipated.

Speakers:

Bruce Kasman

Joseph Lupton

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

Central banks continue to tighten aggressively with the DM moving aggressively and more muted action from EM central banks. But the pressure for more is there with labor markets having yet to show signs of easing and EM central banks leaning on FX intervention to limit their currency depreciation.

Speakers:

Bruce Kasman

Michael Hanson

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

This week we downgraded the UK outlook but see scope for more policy support across Europe; conversely, better August activity data in China do not quell our concerns over COVID lockdowns and a weak real estate sector. Another 75bp move by the Fed headlines a busy upcoming week of central bank hiking. We now see the Fed’s policy rate reaching 4.25% early next year.

Speakers:

Joseph Lupton

Michael Hanson

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

While Europe remains the weakest link in the global outlook, rapidly rising natural gas inventories combined with continued large doses of fiscal support are tempering downside tail risks. Risks remain skewed to the downside in China. Against this backdrop, major DM central banks are on track to hike at the fastest pace this quarter since 1980. With the inflation threat still unvanquished, more hikes are to come.

Speakers:

Bruce Kasman

Joseph Lupton

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

We are increasingly confident that the global economy will avoid a recession. This owes largely to improvements in the US where a resilient labor market looks set to combine with falling inflation to boost spending. By contrast, surging inflation in Europe—which surprised to the upside this week—is expected to spark a recession. And in China, headwinds are building and we lower the outlook. Against this backdrop, the Fed and ECB are still focused on getting rates above or at least back to neutral respectively.

Speakers:

Bruce Kasman

Joseph Lupton

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

No mind tricks in Fed Chair Powell’s brief but forceful message that more restrictive policy is coming and the Fed will not prematurely reverse course. With another solid US jobs report expected next week, we see the Fed hiking 75bp in September. This week also saw us put a deeper recession and higher inflation into our Euro area outlook, whereas more fiscal support in China reduces the downside risks to growth there.

Speakers:

Michael Hanson

Daniel Silver

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This week’s data highlight regional divergences: US IP and retail sales were good, China’s domestic demand and real estate investment were not, and a surge in natural gas prices risks deeper downturns across Europe. Elevated inflation should keep DM central banks hiking further – we added 75bp to our BoE call for this year and look for Chair Powell to stress the Fed’s focus on getting inflation down at Jackson Hole next week.

Speakers:

Bruce Kasman

Michael Hanson

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

July CPI readings signify that a significant slowing of global inflation momentum is underway, largely due to falling energy prices. Softer demand and easing supply pressures should help bring down core as well. But with natural gas prices surging, Europe may stand out with limited disinflation and a contraction by year-end.

Speakers:

Bruce Kasman

Michael Hanson

This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.