BofA: Here Comes The Recession Panic…(13…)

Friday, May 31, 2019
By Paul Martin

by Tyler Durden
Fri, 05/31/2019

As we await for Goldman to throw in the towel and admit its forecast of one rate hike in 2020 (and no cuts in 2019), was overly… optimistic, moments ago Barclays had a “hold my beer” moment, and just hours after JPMorgan changed its forecast, and as a result of an economic slowdown resulting from the escalating trade war now expects 2 rate cuts in 2019, Barclays has one-upped the largest US bank, and moments ago revised its FOMC forecast, now expecting 3 rate cuts in 2019.

Now, while some may debate whether a curve inversion begins the clock on an upcoming recession, one things is undisputable: while many analysts will caution that it is the Fed’s rate hikes that ultimately catalyze the next recession and that every Fed tightening ends with a financial “event”, the truth is that there is one step missing from this analysis, and it may come as a surprise to many that the last three recessions all took place with 3 months of the first rate cut after a hiking cycle!

In other words, if JPM and Barclays are right, the US economy will enter a recession some time around January 2020.

It is this historic inflection point that Wall Street and traders will be focusing on, because after what now appears set to be the longest economic expansion in history starting at midnight tonight, the recession now appears inevitable. Although don’t assume for a minute that Wall Street won’t fight tooth and nail to delay this admission.

Case in point, as BofA’s Michael Hartnett writes, in the next few days we have a barrage of data which will prompt a “recession panic”, including last night’s dismal China manufacturing PMI <49, next week's US ISM new orders (watch for a <50 print) and the June 7 payrolls report (flashing alert if NFP is <100k). However, as Hartnett writes, while the data would likely initially cause markets to gap lower, they would then stabilize in anticipation of policy response; while if data better-than-expected, yields could rise & bearish positioning would allow risk assets to bounce in June. That may be optimistic, because if Pimco's unprecedented warning that the Fed is about to lose control of markets, going forward bad news will no longer be bad news. Instead they will be terrible news, and a coming recession would have devastating consequences on the market and global economy. The Rest...HERE

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