Deutsche Bank is sticking to its forecast from over a year ago: that a “major recession” is inevitable after the Fed’s historic policy shift. “The U.S. is on track for its first genuine policy-led boom-bust cycle in four decades, … unleashing high inflation and an aggressive policy response. The next stage is the U.S. recession that we were the first to forecast early last year,” the bank’s top minds wrote Monday, adding that the Fed could raise rates up to three more times. According to Bank of America, there will be a wave of corporate defaults due to tighter credit conditions. “A rolling blackout is the least disruptive way for credit to align to a new rates regime. As the rates shock steadily makes its way through the credit ecosystem, sectors respond at varying lags,” its strategists said. If a full-blown recession does occur, defaults could notch 6-7% in 2024, with the bank previously predicting $1 trillion in corporate defaults.
Fortune via Yahoo Finance/Will Daniel
Deutsche Bank says the U.S. is headed for a ‘policy led’ recession—it’s the unavoidable ‘boom-bust cycle’
In April of last year, just a month after Russia’s invasion of Ukraine, Deutsche Bank became the first major investment bank to predict a U.S. recession. Less than a month later, its economists upped the ante on their forecast, arguing that a “major recession” would hit by the end of 2023 or the first quarter of 2024 due to rising interest rates and stubborn inflation.
But since then, the economy has remained surprisingly resilient even amid consistent headwinds. The unemployment rate stuck near pre-pandemic lows at 3.7% in May and GDP jumped 1.1% in the first quarter. The stock market is also on fire after a dismal 2022, with the S&P 500 rising more than 12% year to date as investors flock to A.I. plays.
Still, despite the recent positive news, Deutsche Bank’s top minds continue to believe a recession is inevitable after the Federal Reserve’s historic policy shift.
Continue reading, here.
Markets Insider/Jennifer Sor
The credit crunch will bring a ‘rolling blackout’ of defaults as companies feel the pressure of tighter financial conditions, Bank of America says
Tighter credit conditions will bring about a wave of corporate defaults that will roll through sectors of the economy, Bank of America said.
“A rolling blackout is the least disruptive way for credit to align to a new rates regime. As the rates shock steadily makes its way through the credit ecosystem, sectors respond at varying lags,” strategists said in a note on Monday, predicting corporate defaults would hit sectors at different times.
“This way we avoid a cathartic purge, preventing large mark to market losses and high peak default rates. We still land up cleaning out untenable capital structures, but on a stretched-out timeline.”
You can read the full article, here.
Yahoo Finance/Vera Gibbons
Recession talk rages on despite robust jobs market
If it seems as though we’ve been talking about a recession for about three years now, it’s because we have.
“We’ve been talking about a recession since the pandemic hit,” said Mike ter Maat, a libertarian economist. “This is a conversation that just doesn’t want to go away.”
For instance, JPMorgan Chief Operating Officer Daniel Pinto said at a conference on Friday “there will be a recession at some point,” while a new Morgan Stanley note on Monday forecasted a “meaningful” earnings recession by the end of the year.
You can read the full article, here.
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