The market appears to be taking a break from the debate over the exact definition of a recession, according to a measure of bearish odds compiled by strategists at JPMorgan Chase & Co.investThe prospects of a US economic recession are looming.
Aside from base metals, pricing in key markets suggests a slowdown in US gross domestic product (GDP) for two consecutive quarters of contraction is only around 50%. Combining investor opinion in the stock market, credit and interest rate markets, he believes the likelihood of a recession in the United States is only 40%, down from 50% in June’s figures.
This apparent calmness, especially in the stock market, has led to warnings from economists and the U.S. Treasury is in line with bonds.yieldEvents like the inversion are out of tune; Economists are now raising their forecast of a recession to 40 percent from 30 percent in June.
stamp 500indexThe rebound from June’s lows to a two-month high is a shift in sentiment among stock market investors, which could be due to the fact that the price of the bad news has risen.
JP Morgan strategist Nikolaos Panigirtzoglu said: “In June bearish risk pricing terms, equities were well ahead of expectations and are now trending towards other markets such as credit, interest rates, etc.
The S&P 500 signaled a bearish prospect of 51%, down sharply from 91% two months ago; US junk bond prices reflected a 24% bearish outlook, up from 33% in June.
US only Treasury bill and commodity markets increase the likelihood of a recession. The likelihood of a recession as reflected in the five-year US Treasury note increased from 15% to 38%. Commodity markets are pointing to an 84% chance of a recession, up from 65% in June.
A new wave of market optimism fueled US economic contraction for two consecutive quarters this year. Other key economic indicators, including consumer spending and housing investment, have shown signs of cooling recently.
The junk-bond market is also indicating that investors’ bearish fears have subsided and their risk premiums are at levels seen in previously non-bearish periods. With Fed officials determined to take aggressive action to tackle high inflation even at the risk of derailing economic growth, strategists have warned that markets could be disappointed.
Peter Chatwell, Head of Global Macro Strategy Trading at Mizuho International, said: “I do not agree with the idea of reducing the likelihood of a recession. It is summer and the risk of eventuality is low, so the spread is still ideal. I expect September Till then the market sentiment will be different.”