By Rudi Filapek-Vandyck
Early January market optimism quickly turned into the realisation the US economy is still facing an economic recession this year. All equity indices in the US have turned tail by more than -1% this morning Sydney time.
The offset is that US bonds are now pricing out the probability of a 50bp hike by the Fed at the upcoming meeting.
Economic data in the form of retail sales and industrial production came out weak and from the background the likes of Morgan Stanley (NYSE:MS) strategist Mike Wilson would have whispered: this is what happens ahead of economic recession.
From a technical perspective, the S&P 500 has once again been stopped in its rally at the 200 days moving average, still leaving a net gain of 2.8% for the year to date.
Adding further fuel to the risk off sentiment was more hawkish talk from Fed heads. Fighting inflation remains the key goal. Economic recession is not enough to waver. At least such remains the official mantra for the time being.
A wise observer once remarked there is one certainty about the Federal Reserve and that is its policy will change if the facts change first. It's timing the pivot that is more of a challenge.
Yesterday, the Bank of Japan ignored market speculation and made no change to its yield curve control policy. Response from economists: it's but a matter of time. Again: timing the pivot can be extremely tricky.
More job layoffs from Microsoft Corporation (NASDAQ:MSFT) (-10,000 or close to -5% of its global workforce) further added to the general realisation that this is how economic recessions announce themselves; weakening data, job losses and a central bank that remains intent to continue fighting inflation.
"The Overnight Report: US Recession Coming" was originally published on FNArena.com and was republished with permission.