Soft landing possible Financial market recession expected with high expectations

2023-07-16 15:31:00

The US financial market, which is expected to make a soft landing… Anticipation of a recession

(New York = Yonhap News) Correspondent Kang Geon-taek = Expectations that the US economy can make a soft landing are widely inflated in the financial market.
As indicators showing a significant slowdown in the recent inflation rate have continued, the scenario that the US central bank, the Federal Reserve System (Fed) will control inflation without putting the economy into recession, is no longer a’Mission Impossible’ atmosphere.
The Wall Street Journal (WSJ) reported on the 16th (local time) that the Consumer Price Index (CPI) and Producer Price Index (PPI) for June, which were announced last week, showed the smallest increase in two to three years, and inflation has calmed down more than ever. He diagnosed this, saying that his confidence in
These expectations are already reflected in the US financial market.
The New York Stock Exchange’s Standard & Poor’s (S&P) 500 index rose 2.4 percent last week, recording the largest weekly gain in a month, increasing its gain from the beginning of the year to 17 percent. The Nasdaq index, which focuses on technology stocks, soared 35% this year, doubling the rise.
The 10-year US Treasury yield, the benchmark for market interest rates, closed at 3.818% on the 14th, showing a distinct calming trend compared to a week ago (4.047%). The one-week drop is the largest since March.
The fact that large banks such as JPMorgan Chase and Wells Fargo started off the second quarter earnings season with earnings surprises that far exceeded Wall Street analysts’ forecasts also supports the expectation that a recession may be avoided.
The strong performance of the big banks means that individuals and businesses continue to borrow and spend money.

The views of economists are also changing positively.
The WSJ reported in a recent survey of economists that the probability of a recession over the next 12 months was 54%.
Historically, it is still a high level, but it is a much better result than the previous two surveys (61%). The 7 percentage point drop in the probability of a recession seen by experts is the largest since August 2020, the WSJ said.
The forecast for the second quarter US GDP growth rate was calculated at 0.2% in the previous survey, but this time it has improved significantly to 1.5%. In the previous survey, negative growth was expected in the third quarter (-0.3%), but in this survey, economists predicted a 0.6% growth in the third quarter as well. However, it is expected to record -0.1% in the fourth quarter.
Economists expect the Fed’s median interest rate to peak at 5.4% in December, followed by rate cuts starting next year. Economists who expected interest rate cuts to start in the second half of this year plummeted from 36.8% just before to 10.6% this time around, and 79% predicted that interest rates would start to be cut in the first half of next year.
If the Fed ends its rate hikes in July, as expected by the market, and the economy continues to grow little by little, many investors and experts believe that the stock and bond markets have room to rise further, the WSJ reported.
It is not that there are no variables.
We cannot rule out the possibility that the Fed may decide that the trend of slowing inflation is not sufficient and raise interest rates further after July, and that the soundness of the US economy, which seems to be still sound, deteriorates rapidly.
In addition, there is an opinion that if the financial market has already reflected all future favorable news in advance, there is little room for additional stock and bond prices to rise.
“We all thought the hurricane was coming, but it hasn’t come yet,” Brad Conger, head of investment at Hertle Calhoun, told the WSJ.
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