Add Morgan Stanley copresident Ted Pick to the growing list of financial experts that are saying a recession is coming. According to Pick the economy is on the verge of a fundamental change and the beginning of the “next era.”
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Markets should brace for ‘fire’ and ‘ice’: Morgan Stanley executive warns of a recession and even bigger ‘paradigm shift’
The economy is likely to blow hot and cold for the immediate future, Morgan Stanley’s copresident says, as the economy swings between fears of inflation and fears of contraction.
Last week, Ted Pick, head of institutional securities at investment bank Morgan Stanley, joined bankers and investors from Jamie Dimon to Carl Icahn in warning that chances of a recession are steadily rising, marked by periods of a hot and cold economy.
“There is a fire narrative, and that fire narrative is inflation. And then there is a bit of an ice narrative, that recession talk, hard landing or soft landing,” he said. “We’ll have these periods where it feels awfully fiery, and other periods where it feels icy, and clients need to navigate around that.”
There is still a decent chance the U.S. will enter a recession, but we likely will not know for sure until next fall, Pick said.
He forecasts an economic downturn and slowdown in banking business if “inflation and inflationary expectations are cementing” by next fall, as this would force the Fed to tighten monetary policy and raise interest rates even higher.
The Czech National Bank plan to go on a gold buying spree
The new governor of the Czech National Bank (CNB), Aleš Michl, said he plans to increase the institution’s gold holdings almost tenfold from the current 11 tonnes to 100 tonnes. Michl also said he will ask the bank’s foreign exchange reserves management team to invest in stocks.
The CNB hopes to increase its precious metal holdings from the current 11 tonnes to 100 tonnes or even more. However, this will be done gradually, the incoming governor noted.
With this plan, which sees the bank’s gold holdings grow by almost ten times, the new CNB boss, as one report noted, is seemingly following in the footsteps of other European central banks that have either repatriated or bought more tonnes of gold. For instance, the Hungarian central bank revealed in 2018 that it had grown its gold holdings tenfold, while the Polish central bank is reported to have done the same in 2019.
U.S. labor market keeps Fed on aggressive rate hike path
U.S. employers hired more workers than expected in May and maintained a fairly strong pace of wage increases, signs of labor market strength that will keep the Federal Reserve on an aggressive monetary policy tightening path to cool demand.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate holding steady at 3.6% for a third straight month, even as more people entered the labor force. It sketched a picture of an economy that continues to expand, although at a moderate pace. The U.S. central bank’s interest rate hike campaign and tightening financial conditions have caused anxiety among investors about a recession next year.
“The economy is miles away from being wrecked on the shores of recession with the economy continuing to hire workers at this fast of a clip,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “It is not slowing enough to put the inflation fire out. The Fed’s work is not done.”