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Here Comes The Pivot: JPM Sees Sharp Slowdown In US Economy, “No Further Hawkish Developments From The Fed”

Here Comes The Pivot: JPM Sees Sharp Slowdown In US Economy, "No Further Hawkish Developments From The Fed"

For much of the past month we have been warning that as the broader investing public has been fascinated by the mounting speculation..

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Here Comes The Pivot: JPM Sees Sharp Slowdown In US Economy, "No Further Hawkish Developments From The Fed"

For much of the past month we have been warning that as the broader investing public has been fascinated by the mounting speculation that the Fed will hike 4 times (or even "six or seven" times, thank you Jamie Dimon) and commence shrinking its balance sheet, the US economy had quietly hit a major air pocket  and - whether due to Omicron or because the vast majority of US consumers are once again tapped out (see more below) - US GDP growth is now rapidly collapsing and may turn negative as soon as this or next quarter as the US economy contracts for the first time since the covid shutdowns in Q1/Q2 2020.

Throw in the lack of a new Biden stimulus (BBB is dead as a doornail, courtesy of Manchin), and soaring gas prices (Goldman, Morgan Stanley and Bank of America all see Brent hitting triple digits in the near term, while a Russia-Ukraine war would send oil to $150 and crash the global economy), and we are willing to go on the record that a recession before the November midterms is virtually assured.

But while this is obviously a wildly contrarian view for now, especially with the labor market still supposedly helplessly backlogged with a near record number of job openings coupled with still soaring inflation, others are starting to notice...

... and so is the bond market, which traditionally is the first to sniff out major market inflection points, and which after surging to multi-year highs earlier this week, yields have suddenly slumped.

Nowhere is it clearer what is coming than in the ongoing collapse in the yield curve which at the fulcrum 5s30s, is just 30bps away from where the Fed was when it ended its tightening cycle in 2018.

So it was with some surprise that we were reading the latest big bank weekly reports where precisely this slowdown is being increasingly flagged. Consider the following from JPMorgan's latest Fixed Income Strategy note by Jay Barry (available to professional subs), who writes that JPMorgan's Economic Activity Surprise Index (EASI) "has swung sharply into negative territory in recent weeks, indicating data have underperformed relative to consensus expectations."

This was punctuated by the December retail sales data, as the important control group fell 3.1% over the month (consensus: 0.0%).

The weakness in data, JPM explains for the benefit of the Fed which in hopes of recovering its "credibility" after destroying it in 2021 when it said inflation was transitory and is now scrambling to fix its error is now willing to crash the market just to reduce aggregate demand, "indicates consumption should moderate in 1Q22." And since consumption accounts for 70% of US GDP, guess what that does to overall US growth?

Or don't guess and read what JPM now expects: "we forecast growth decelerated from a 7.0% q/q saar in 4Q21 to a trend like 1.5% in 1Q22." It's not just retail sales, however, or that recent Empire Fed Manufacturing Survey, which just suffered its 3rd biggest monthly drop in history (with only March and April 2020 worse)...

... more locally, initial claims surged 55k to 286k in the week ending January 15, their third straight increase and the highest weekly reading since October.

And while the seasonal volatility in claims around the new year could be amplifying the rise, this was the survey week for the January employment report and presages a much weaker payroll growth this month. In fact, as we discussed in our December jobs report commentary, it is now likely that January payrolls will be negative.

Of course, one can blame the Omicron spike in December for much of this slowdown, and many do - especially those who confused the surge in inflation in 2021 as a "transitory" phenomenon - and are now using covid as a smokescreen to argue that the current slowdown is transitory, but the reality is that there is much more to the current sharp slowdown, and Bank of America's  Michael Hartnett put it best on Friday when he said that the "End of Pandemic = US Consumer Recession" (more here).

Here is the punchline of what the BofA CIO said: "retail sales 22% above pre-COVID levels...

...payrolls up 18mn from lows, inflation annualizing 9%, real earnings falling a recessionary 2.4%, stimulus payments to US households evaporating from $2.8tn in 21 to $660bn in 2022, with no buffer from excess US savings (savings rate = 6.9%, lower than 7.7% in 2019 & and the rich hoard the savings), and record $40bn MoM jump in borrowing in Nov'21...

... "shows US consumer now starting to feel the pinch."

Alongside the realization that an exit from covid means the US is entering a consumer recession, comes Hartnett's admission that any Fed hiking cycle will be short (it not sweet) and will be followed by easing as soon as 2023!.  Indeed, according to Hartnett, while the broader economy certainly needs more hikes to contain inflation, it will take far fewer rate hikes to crash markets, because "when stocks, credit & housing markets have been conditioned for indefinite continuation of "Lowest Rates in 5000 Years" might only take a couple of rate hikes to cause an event (own volatility)".

And since Wall Street always leads Main Street (sorry peasants), it is Hartnett's view that the current "rates shock" is grounds for an imminent "recession fear", and as noted above, the Fed hiking into a slowdown guarantees not only an economic a recession but also a market crisis.

The only question at this point is when will the Fed realize that it can't possibly hike rates enough to offset the surge in inflation which incidentally is not demand driven, but is due to continued supply constraints, over which the Fed has no power!

Which is why JPMorgan's economists go on a limb and perhaps seeking to assure markets, write that "next week’s FOMC meeting will not present the case for further hawkish developments".... and "is only likely to ratify expectations next week and not surprise market participants with another hawkish pivot."

Putting it all together is Goldman Sachs, which agrees with JPMorgan that there will be no hawkish surprises from the Fed, and wrote on Friday that if anything, the Fed will be more dovish than expected, and as such Goldman sees "the conditions in place for a large cover rally into and around the FED next week and when month-end new capital comes back into the equity markets, with corporates dry powder."

Of course, there is always the risk that Joe Biden, now beyond dazed and confused and terrified of the upcoming Democratic implosion after the Nov midterms...

... does not realize how devastating a market crash will be for the US economy where financial assets are now 6.3x greater than GDP...

... and will order Powell to keep hiking and tightening just to break inflation's back (as discussed above, and as Blackrock also noted recently, the Fed is completely powerless to halt supply-driven inflation), even if it means the destruction of the entire wealth effect that the Fed spent the past 13 years trying to create. In that case, all bets are off.

Tyler Durden Sat, 01/22/2022 - 17:00

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Economics

“This Is A Crucible Moment” – Sequoia’s Ominous Warning To Companies On How To “Avoid The Death Spiral”

"This Is A Crucible Moment" – Sequoia’s Ominous Warning To Companies On How To "Avoid The Death Spiral"

"This is not a time to panic. It is…

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"This Is A Crucible Moment" - Sequoia's Ominous Warning To Companies On How To "Avoid The Death Spiral"

"This is not a time to panic. It is a time to pause and reassess," begins the thought-provoking presentation from veteran venture capital firm Sequoia Capital.

But that's about as 'positive' as they get as the founders of the firm warn of a prolonged market downturn and urges the startups in its portfolio to preserve cash and brace for worse to come.

"We believe this is a Crucible Moment, one that will present challenges and opportunities for many of you. First and foremost, we must recognize the changing environment and shift our mindset to respond with intention rather than regret."

And in its somewhat ubiquitous historically grim outlooks (its "R.I.P Good Times" in 2008 and "Black Swan" memo in March 2020 have become legendary) don't expect a quick rescue and recovery this time.

"Sustained inflation, and geopolitical conflicts further limit the ability for a quick-fix policy solution. As such, we do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery, like we saw at the outset of the pandemic," the note said.

They argue that it will be "Survival of the Quickest"...

In particular, Sequoia urged companies to look at cutting projects, R&D, marketing, and other expenses, noting that companies should be ready to cut in the next 30 days.

"We expect the market downturn to impact consumer behaviour, labour markets, supply chains and more. It will be a longer recovery and while we can't predict how long, we can advise you on ways to prepare and get through to the other side," it said.

The founders/CEOs who face reality, adapt fast, have discipline rather than regret will not just survive, but win, noting that "It is easier to preserve cash when you have more than six months left. Recruiting is about to get easier. All the FANG have hiring freezes."

They conclude their presenttation by noting that:

"At Sequoia, we believe that the one who wins is the one most prepared."

In other words America, brace for capex cuts, hiring freezes to accelerate, and growth to evaporate.

*  *  *

Read the full presentation below:

Tyler Durden Thu, 05/26/2022 - 15:45

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Economics

Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

A week ago, following dismal guidance by Walmart,…

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Best Day For Discretionary Stocks Since COVID-Crash As Consumer Recession Bets Get Steamrolled

A week ago, following dismal guidance by Walmart, Target indicated that it is seeing a shift in the consumer wallet away from the pandemic purchases and into reopening purchases - including apparel - and the pace of this shift caught some retailers off guard on inventory. WMT, COST, and TGT all saw their stocks fall sharply last week as investor concerns around a US consumer slowdown mounted and investors reconsidered just where, if anywhere, you can play "defense" in the current market.

But as Goldman's Chris Hussey writes today, this week, results from companies like DKS, Macy's, JWN, WSM, DLTR, and DG painted a decidedly different picture.

Deep discount retailers Dollar Tree - or rather Dollar 25 Tree - and Dollar General both posted strong results and DLTR raised top-line guidance.

Which isn't surprising: as we discussed in "Middle Class Is Shutting Down As Spending By The Rich Remains Robust" when consumers are trading down - as they are doing now due to Biden's runaway inflation - dollar stores see more business.

As a result, Dollar Tree surged as much as 20% on Thursday, the biggest intraday move since October 2020. Evercore ISI said Dollar Tree's move to a "$1.25 price point" last November from $1 “came in the nick of time" adding that "given the broad-based inflationary cost pressures, the 25% price increase drove material sales and margin upside for both the namesake division and the total company," wrote analyst Michael Montani who also said that while freight, transport, and labor headwinds are real, some of the pressure cited by Target last week was likely company specific.

The analyst concluded that the read-across from DG and DLTR is “favorable,” and it seems that the low-end consumer is “hanging in better than initially thought.” Or rather, the middle-class is getting crushed and it has no choice but to trade down to the cheapest retail outlets.

And with countless shorts having piled up and getting massively squeezed, the S&P 500 Consumer Discretionary Index today has risen as much as 5.6%, its best day since April 2020, as optimism on the health of the consumer returns following a string of better-than-expected earnings reports from retailers.

Top performers in the S5COND index include Dollar Tree, Dollar General, Norwegian Cruise, Caesars Entertainment and Carnival; the Discretionary Index is on pace for its best week since March 18, when the group climbed 9.3%; the index sank 7.4% as Walmart and Target reports spooked investors. The index is still down almost 30% YTD.

"Retail earnings are bullish.... with four blow-outs,” said Vital Knowledge’s Adam Crisafulli, referring to quarterly reports from Williams-Sonoma, Macy’s, Dollar General, and Dollar Tree.  “The overall retail industry is experiencing stark changes and the market is incorrectly conflating these shifts with underlying demand weakness when the actual health of the consumer is much better than it seems,” Crisafulli says, although there are many - this website included - who wholeheartedly disagree with his optimistic view of the US consumer.

Remarkably, thanks to today’s rally, even Burlington Stores, which sank as much as 12% in premarket on disappointing results, is trading up as much as 11% and some say, the rally helped reverse the earlier tumble in NVDA shares.

The discretionary group is also getting a boost from airline operators Southwest and JetBlue, helping travel-related names, while on the economic front, better-than-expected personal consumption (for the revised Q1 GDP print). and jobless claims may be adding to the bullishness according to Bloomberg.

Tyler Durden Thu, 05/26/2022 - 15:00

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Spread & Containment

Asymptomatic SARS-CoV-2 infections responsible for spreading of COVID-19 less than symptomatic infections

Based on studies published through July 2021, most SARS-CoV-2 infections were not persistently asymptomatic, and asymptomatic infections were less infectious…

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Based on studies published through July 2021, most SARS-CoV-2 infections were not persistently asymptomatic, and asymptomatic infections were less infectious than symptomatic infections. These are the conclusions of an update of a systematic review and meta-analysis publishing May 26th in the open access journal PLOS Medicine by Diana Buitrago-Garcia of the University of Bern, Switzerland, and colleagues.

Credit: Monstera, Pexels (CC0, https://creativecommons.org/publicdomain/zero/1.0/)

Based on studies published through July 2021, most SARS-CoV-2 infections were not persistently asymptomatic, and asymptomatic infections were less infectious than symptomatic infections. These are the conclusions of an update of a systematic review and meta-analysis publishing May 26th in the open access journal PLOS Medicine by Diana Buitrago-Garcia of the University of Bern, Switzerland, and colleagues.

Debate about the level and risks of asymptomatic SARS-CoV-2 infections continues, with much ongoing research. Studies that assess people at just one time point can overestimate the proportion of true asymptomatic infections because those who go on to later develop symptoms are incorrectly classified as asymptomatic rather than presymptomatic. However, other studies can underestimate asymptomatic infections with research designs that are more likely to include symptomatic participants.

The new paper was an update of a living (as in, regularly updated) systematic review first published in April 2020, which includes additional, more recent studies through July 2021. 130 studies were included, with data on 28,426 people with SARS-CoV-2 across 42 countries, including 11,923 people defined as having asymptomatic infection. Because of extreme variability between included studies, the meta-analysis did not calculate a single estimate for asymptomatic infection rate, but it did estimate the inter-quartile range to be that 14–50% of infections were asymptomatic. Additionally, the researchers found that the secondary attack rate—a measure of the risk of transmission of SARS-CoV-2 — was about two-thirds lower from people without symptoms than from those with symptoms (risk ratio 0.32, 95%CI 0.16–0.64).

“If both the proportion and transmissibility of asymptomatic infection are relatively low, people with asymptomatic SARS-CoV-2 infection should account for a smaller proportion of overall transmission than presymptomatic individuals,” the authors say, while also pointing out that “when SARS-CoV-2 community transmission levels are high, physical distancing measures and mask-wearing need to be sustained to prevent transmission from close contact with people with asymptomatic and presymptomatic infection.”

Coauthor Nicola Low adds, “The true proportion of asymptomatic SARS-CoV-2 infection is still not known, and it would be misleading to rely on a single number because the 130 studies that we reviewed were so different. People with truly asymptomatic infection are, however, less infectious than those with symptomatic infection.”

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In your coverage, please use this URL to provide access to the freely available paper in PLOS Medicine:

http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1003987  

Citation: Buitrago-Garcia D, Ipekci AM, Heron L, Imeri H, Araujo-Chaveron L, Arevalo-Rodriguez I, et al. (2022) Occurrence and transmission potential of asymptomatic and presymptomatic SARS-CoV-2 infections: Update of a living systematic review and meta-analysis. PLoS Med 19(5): e1003987. https://doi.org/10.1371/journal.pmed.1003987

Author Countries: Switzerland, France, Spain, Argentina, United Kingdom, Sweden, United States, Colombia

Funding: This study was funded by the Swiss National Science Foundation http://www.snf.ch/en (NL: 320030_176233); the European Union Horizon 2020 research and innovation programme https://ec.europa.eu/programmes/horizon2020/en (NL: 101003688); the Swiss government excellence scholarship https://www.sbfi.admin.ch/sbfi/en/home/education/scholarships-and-grants/swiss-government-excellence-scholarships.html (DBG: 2019.0774) and the Swiss School of Public Health Global P3HS stipend https://ssphplus.ch/en/ (DBG). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.


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