Control Panel: Recession start?

Federal Reserve Chairman Jerome Powell repeated this week that the Fed would continue to raise the fed funds rate and slowly implement QT even if a recession resulted.

The bond market heard this message loud and clear. Stocks continued to decline as before, but longer-maturity Treasury yields gapped down even though the Fed is expected to raise the overnight fed funds rate. The 10YT gapped down to 2.9% during the week even though the Fed’s dot plot shows that the FOMC will target a fed funds rate of 3.5% by the end of the year. That would lead to an inverted yield curve.

The entire Treasury yield curve dropped last week. (Treasury yields are falling, which is normal at the start of a recession. The 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity is essentially zero.

The Fear & Greed Index is in Extreme Fear (but not deeply). The trade is risk-off as stocks and junk bonds are dropping while the Treasury prices are rising.

Economically sensitive commodities are dropping. Copper, oil, natgas are falling. Copper is falling harder than gold (a “mungofitch ratio” that reflects the real economy). USD is strong and rising.

Real GDP dropped 1.6% in 1Q22, largely due to inventory. The Atlanta Fed’s GDP Now estimate has fallen off a cliff in the past week, showing -2% forecast for 2Q22. Real Personal Consumption Expenditures declined in May.

The Institute for Supply Management’s June Manufacturing PMI® registered 53 percent, down 3.1 percentage points from the reading of 56.1 percent in May. This is the lowest Manufacturing PMI® reading since June 2020. The New Orders Index reading of 49.2 percent is 5.9 percentage points lower than the 55.1 percent recorded in May. All of the six biggest manufacturing industries — Computer & Electronic Products; Machinery; Transportation Equipment; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Chemical Products — registered moderate-to-strong growth in June.

In May, the Services PMI® registered 55.9 percent, 1.2 percentage points lower than April’s reading of 57.1 percent. This is the lowest reading since February 2021.

The Service sector of the economy is much larger than the Manufacturing sector. It is concerning that both are slowing although growth is still positive.

I think that the bond market, which always tries to predict future rates, is expecting a recession soon…or possibly that it has already started.

The stock market has dropped due to the anticipated impact of higher interest rates on companies, especially “high-growth” companies with high debt levels that need to be rolled over. But I don’t think that a recession is fully priced in to the stock market yet.

The METAR for next week is rainy but not stormy. The market is moving into winter but there isn’t a crisis on the horizon.



Economically sensitive commodities are dropping. Copper, oil, natgas are falling.


Wheat prices are falling. Steel, nickel, cobalt, zinc, tin and many other metals are falling.

During June, metal prices have steadily fallen. Aluminum has fallen 12% (USD 330) from the beginning of June till July, while copper has fallen 13% (USD 1.270). At the moment, aluminum and copper prices are at the lowest level over the past 12 months.

However, lithium prices are not falling.


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New lithium production is increasing faster than demand, and so the price is expected to drop. Battery prices are lower than 10 years ago, and are expected to drop to under $100 per kWh.

— links —
“we see prices on a downward trajectory over the course of the next two years, with a sharp correction in lithium (spot $60,350/t versus GSe average 2022 $53,982/t and 2023 $16,372/t), and to a lesser extent cobalt (spot $87,100/t, GSe 2022 average $78,500/t and 2023 $59,500/t)… Over 2022-25E, on supply we expect lithium to grow on average by 33% y/y, cobalt by 14% y/y and nickel by 8% y/y against annual demand growth rates of 27%, 11% and 7% respectively. Compounded this leads to some substantial misalignment in fundamentals - notably lithium supply should more than double against a 73% increase in demand between now and the middle of the decade. This significant supply growth phase has been catalysed by strong capex flows into projects in Australia, China, Chile and Indonesia in particular”…

“BNEF predicts average pack prices will dip below $100 per kWh in 2024, allowing automakers to produce electric cars that achieve price parity with gasoline vehicles.”…

“Figure ES-2 shows the overall capital cost for a 4-hour battery system based on those projections, with storage costs of $143/kWh [to] $248/kWh in 2030 and $87/kWh [to] $248/kWh in 2050.”


New lithium production is increasing faster than demand, and so the price is expected to drop.…

            2022         2023          2030
Cobalt   2% deficit   0%           32% deficit
Nickel   2% deficit   0%           22% deficit
Lithium  1% surplus   8% surplus   13% deficit


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Half of Teslas made today use no Co or Ni in their batteries. And the new 4860 lion battery uses no Co. Tesla sources directly from mine.… Nickel will be tough, most of present production goes into alloys (stainless steel etc) Nickel used for alloys can be recycled and higher prices will encourage that.
Unlike Ni and Co. Li is plentiful in the earth crust, but unfortunately usually in low concentrations . Higher demand will create supply. And maybe they can get its close cousin Sodium to work