Shoppers would possibly simply stave off a US recession

A “Sold” sign outside a home on the Toll Brothers Regency Ranch on the Folsom housing development in Folsom, California, on Tuesday, May 16, 2023.

David Paul Morris | Bloomberg | Getty Images

This report comes from today’s CNBC Daily Open, our new newsletter for international markets. CNBC Daily Open gives investors everything they need to know, no matter where they are. Do you like what you see? Here you can sign up.

What you need to know today

Stocks are recovering
Major US indices rose in a tech-driven rally on Tuesday, shaking off a multi-day losing streak. However, US futures fell slightly in overnight trading. European markets also traded higher. The pan-European Stoxx 600 rose 0.05%, breaking a six-day losing streak. That’s thanks in part to a 16% surge in shares of fintech firm Wise, which reported 73% year-over-year earnings growth.

recession warning
According to HSBC Asset Management, the US will slide into recession in the fourth quarter of this year and remain so until 2024. In addition, the eurozone economy will contract next year like the US. The silver lining to this forecast: Inflation will fall quickly, and HSBC expects the Federal Reserve to cut interest rates by the end of this year.

Longer higher tariffs
European Central Bank President Christine Lagarde said eurozone inflation is still “too high and will remain so for too long”. In May, headline inflation in the region was 6.1%, down from 7% in April but still three times the ECB’s target of 2%. Lagarde warned that the ECB is unlikely to pause or even cut interest rates any time soon.

Unity’s AI marketplace
Unity shares surged over 15% to hit $42.38 per share after the company opened a marketplace for artificial intelligence software. The company develops a game engine — also called Unity — that allows users to produce games for phones and consoles. With the new marketplace, users can select software from other companies to generate AI graphics, text, speech, etc.

[PRO] Seth Klarman on markets
Legendary Baupost Group investor Seth Klarman spoke to CNBC in an exclusive interview on Tuesday. Two highlights: Klarman pointed to one of the most common mistakes regular investors make when buying index funds, and identified “hunting territory” for investors looking for opportunities. Watch the full interview here.

The final result

Recession, recession, recession. The calls are so loud that you can still hear them if you cover your ears.

Here Joseph Little, chief global strategist at HSBC Asset Management, says: “The coming recession scenario will be more like the recession of the early 1990s, with our central scenario being a 1-2% contraction in GDP.”

Marko Kolanovic, Top Strategist at JPMorgan Chase: “We expect a tougher environment for equities…given the slowing economy and a likely recession from 4Q23/1. Quarter 24.”

Seth Klarman, chief executive officer of Baupost Group: “The goal of the Fed is to reduce the heat in the economy, and one way to do that is to trigger some sort of recession…so maybe it’s an early 2024 event.”

But new economic data from the US showed a robust economy that, with a bit of luck, could eventually exceed these forecasts.

Consumer confidence rose more-than-expected to hit highest level since January 2022; The proportion of respondents expecting a recession fell by four percentage points (although it is still high at 69.3%).

The real estate market, which is generally a leading indicator of a downturn, also showed surprising strength. New home sales rose 12.2% in May from April – economists had expected a 1.2% decline. According to the Case-Shiller Index, a closely watched indicator, house prices rose 1.3% mom in April.

Demand for durable goods, which are typically large purchases like televisions and transportation equipment that require long-term payments, rose 1.7% in May. That’s faster than April’s 1.2% gain and far more than the Dow Jones estimate of a 1% decline.

All of this data shows that the US consumer is not yet giving way amid higher interest rates and (allegedly) a gloomy economic outlook.

And if Chris Senyek, chief investment strategist at Wolfe Research, expects that “the US consumer will be the key driver of the economic outlook” proves correct, then this consumer strength could enable the US economy to defy many votes to stave off a recession predict one.

Comments are closed.