https://www.wsj.com/articles/recession-risk-is-rising-econom…
**Recession Risk Is Rising, Economists Say**
**Forecasters raise probability of economic contraction in next 12 months to 28% as Fed tightens to beat back inflation**
**By Gwynn Guilford and Anthony DeBarros, The Wall Street Journal, April 10, 2022**
**...**
**The median economist in the survey projected that the Fed will take the federal funds rate’s midpoint range to 2.125% by the end of 2022, and then to 2.875% by December 2023 — close to the Fed’s own projections....**
**Economists slashed their forecast for growth this year. On average they see inflation-adjusted gross domestic product rising 2.6% in the fourth quarter of 2022 from a year earlier, down a full percentage point from the average forecast six months ago, though still higher than the 2.2% average annual growth rate in the decade before the pandemic....**
**While recognizing the rising risk of a downturn, a majority of economists — 63% — still think the Fed will be able to rein in inflation without triggering a recession—what economists call a “soft landing.” Many said the economy is well positioned to withstand tightening given unemployment near record lows, steadily rising incomes and relatively subdued levels of consumer debt....** [end quote]
Overall, that’s a pretty optimistic take. Of course, economists are really terrible at predicting the economy, whether inflation, recession or the direction of the asset markets. That’s why recessions are only defined afterwards.
Meanwhile, stocks have rallied from their early-March low. They fell back a little over the past couple of weeks. Noise?
https://www.wsj.com/articles/why-stocks-are-rallying-in-the-…
**Why Stocks Are Rallying in the Midst of a War and Soaring Inflation**
**The S&P 500 has rebounded 7.6% from its 2022 low in March, cutting its losses for the year to about 6%**
**By Gunjan Banerji and Caitlin McCabe, The Wall Street Journal, April 10, 2022**
**...**
**2. U.S. job growth remains strong, with the March report showing employers added 431,000 jobs, the 11th straight month with an increase of more than 400,000. That marked the longest streak in records dating back to 1939.**
**Investors point to other encouraging signs: Wages continue to grow. ...Still, some cracks are starting to emerge: U.S. consumer spending in February slowed sharply from the month before, as inflation — which jumped to an annual 7.9% rate in February — weighed on households and chipped away at wage gains.**
**3. Real Yields Are Still Negative**
**Many investors say stocks are still being lifted by one closely watched bond-market metric: real yields....** [end quote]
Plus other reasons that can be lagging and/ or temporary.
The really strong signals are coming from the bond market and energy.
Bond yields are rising steadily, as the Fed announced that it will raise the fed funds rate and also begin Quantitative Tightening (reducing the additions to their holding of longer-term Treasuries and mortgage bonds). Fed assets are beginning to level out, showing that they aren’t buying more even though they haven’t yet started to reduce their bloated book.
The Treasury yield curve has risen along its entire duration. It’s now essentially flat from 2 years to 30 years, with a couple of slight inversions. If the Fed raises the fed funds rate as much as the economists think it will, the curve will invert by the end of next year unless the entire curve shifts upward…which is likely.
The 30-Year Fixed Rate Mortgage is rising rapidly and is now the highest it has been since October 2018.
The Fear & Greed Index is neutral. The trade is mixed. USD is rising. SPX has been rising relative relative to the 10YT but may have topped since stocks fell last week. Same with junk bonds relative to the 10YT. Gold, silver and copper are all stable in a narrow channel.
The relentless rise in energy prices will drive inflation higher. Inflation is also driven by rising rents, housing prices and food. The March inflation report isn’t out yet but everyone expects it to be higher than February.
**‘Everything Was Destroyed’: War Hits Ukraine’s Farms**
**April 10, 2022, The New York Times, by Emma Bubola, Valeriya Safronova and Maria Varenikova**
**...**
**The war has reached deep into the fertile plains of a region known as Europe’s breadbasket, paralyzing harvests, destroying granaries and crops, and bringing potentially devastating consequences to a country that produces a large share of the world’s grain.**
**Ukraine has already lost at least $1.5 billion in grain exports since the war began, the country’s deputy agriculture minister said recently. And Russia, the world’s leading grain exporter, has been largely unable to export food because of international sanctions...**
**The combination is creating a global food crisis “beyond anything we’ve seen since World War II,” the chief of the United Nations World Food Program has warned....** [end quote]
There are no new emergencies affecting the Macro economy and markets…
Other than rising inflation, the Fed tightening, Covid-19 Omicron BA.2 beginning to spread and the Russians hiring a general known for attacking civilians in Syria to direct the assault on eastern Ukraine.
Aside from that, everything is peachy and sailing along as expected.
The METAR for next week is cloudy. Interest rates will continue to rise. It’s not clear whether the stock market will shrug that off or begin to crumble. There’s lots of noise and the trend is unclear. Only time will tell.
Wendy
https://stockcharts.com/freecharts/candleglance.html?VTI,$SP…
https://stockcharts.com/freecharts/candleglance.html?$IRX,$U…
https://stockcharts.com/freecharts/candleglance.html?$SPX,$U…
https://stockcharts.com/freecharts/yieldcurve.php
https://fred.stlouisfed.org/series/MORTGAGE30US
https://fred.stlouisfed.org/series/CUUR0000SEHA
https://fred.stlouisfed.org/series/CUSR0000SEHC
https://fred.stlouisfed.org/series/CSUSHPISA
https://fred.stlouisfed.org/series/CPIUFDNS
https://fred.stlouisfed.org/series/WALCL
https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=p…
https://www.nytimes.com/2022/04/10/world/europe/ukraine-farm…