{"id":37856,"date":"2023-07-19T17:15:06","date_gmt":"2023-07-19T21:15:06","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-one-analyst-thinks-possible-recession-could-still-arrive-by-february\/"},"modified":"2023-07-19T17:15:08","modified_gmt":"2023-07-19T21:15:08","slug":"why-one-analyst-thinks-possible-recession-could-still-arrive-by-february","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=37856","title":{"rendered":"Why one analyst thinks possible recession could still arrive by February"},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

It\u2019s been a full year since one of the U.S. bond market\u2019s most reliable gauges of impending recessions started to consistently flash worrisome signals, and yet no downturn has materialized.<\/p>\n

Instead, investors and traders are now increasingly hopeful about a soft landing, or scenario in which inflation continues to ease without a meaningful uptick in unemployment or a recession \u2014 raising doubts about the credibility of the Treasury market\u2019s pessimistic message over the past 12 months. <\/p>\n

Read:<\/strong> Goldman chief economist sees reduced chance of recession and dismisses inverted-yield-curve worries<\/p>\n

Amid the continuing debate about whether the world\u2019s largest economy will or won\u2019t fall into a contraction lasting two consecutive quarters, strategist Jim Reid of Deutsche Bank weighed in via a Wednesday note with the view that the window in which a U.S. downturn could still happen actually runs through next February. That\u2019s based on how historical lags between U.S. recessions and an inverted spread on 2-
\n TMUBMUSD02Y,
\n 4.780%<\/bg-quote>
\n and 10-year Treasury yields
\n TMUBMUSD10Y,
\n 3.754%<\/bg-quote>
\n have played out over the past seven decades.<\/p>\n

An inverted curve simply means that the policy-sensitive 2-year rate is trading far above its 10-year counterpart, as it is now because of the Federal Reserve\u2019s battle against inflation. The yield on the 10-year Treasury note finished about a full percentage point, or 100 basis points, below the yield on the 2-year note on Wednesday.<\/p>\n

Reid describes the 2s10s spread, which has remained consistently below zero since last July, as \u201cthe most accurate predictor of a U.S. downturn over the last 70 years.\u201d In other words, no domestic recession has ever occurred without an inverted curve occurring first, and there\u2019s been only one false alarm which took place in the mid-1960s. <\/p>\n

Historical lags \u2014 starting from the time when the 2s10s spread goes below zero, and stays there for three months, to when a recession comes to fruition \u2014 suggest that the U.S. economy could still fall into a downturn sometime between now and early next year, according to Reid. <\/p>\n

His Chart of the Day shows that a U.S. recession next January or February could occur using the same historical lags seen during downturns in January 2008 and August 1990. <\/p>\n

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<\/p>\n<\/figure><\/div>\n

\u201cWe\u2019re around a third of the way\u201d through the window which opened in March and closes next February for a possible U.S. recession, as suggested by patterns which have played out over nine of the past 10 cycles, Reid wrote. \u201cThe closer we get to the end of the first quarter next year without a recession, the more the chances of this time being different. Until then, we\u2019re playing dodgeball.\u201d<\/p>\n

Indeed, analysts like those at Swiss banking giant UBS are focusing on the flip side of the recession argument, by outlining all of the reasons a U.S. downturn hasn\u2019t happened yet. They cite strong consumer savings, a resilient job market, and monetary policy by the Federal Reserve which is still not tight enough as a few of the factors holding up the U.S. economy.<\/p>\n

Frankfurt-based Deutsche Bank is often regarded as Wall Street\u2019s most pessimistic bank. In April of last year, it became the first major bank of the current inflation era to predict a U.S. recession and a growth recession in the euro area within the next two years.\u201d The latter scenario has since occurred, with the eurozone falling into a technical recession earlier this year.<\/p>\n

On Wednesday, the 2s10s spread ended the New York session at minus 101.2 basis points. Treasury yields finished mostly lower after softer-than-expected U.K. inflation data. Meanwhile, Dow industrials
\n DJIA,
\n +0.31%<\/bg-quote>
\n and the S&P 500
\n SPX,
\n +0.24%<\/bg-quote>
\n closed higher, extending their year-to-date gains. And the ICE U.S. Dollar Index
\n DXY,
\n +0.35%<\/bg-quote>,<\/span>
\n a reflection of investors\u2019 views about the U.S. outlook relative to other countries, jumped 0.4%.<\/p>\n

The only false alarm produced by an inverted 2s10s curve and cited by Reid was in the mid-1960s \u201cwhen,\u00a0due to rising inflation, the market was expecting a hiking cycle in 1966 that didn\u2019t materialize\u201d partly because of a falling equity market and concerns about rising unemployment.<\/p>\n

As a result, the curve eventually moved back\u00a0above zero and \u201cthe looser policy than expected helped avoid a recession,\u201d Reid said. \u201cHowever, inflation reignited in 1967 and the Fed had to hike more aggressively later in the decade and the next inversion in 1968\/69 restored the usual lag between inversion and recession,\u201d which was formally declared by the National Bureau of Economic Research as starting in December 1969. <\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s been a full year since one of the U.S. bond market\u2019s most reliable gauges of impending recessions started to consistently flash worrisome signals, and yet no downturn has materialized. Instead, investors and traders are now increasingly hopeful about a soft landing, or scenario in which inflation continues to ease without a meaningful uptick in […]<\/p>\n","protected":false},"author":1,"featured_media":37857,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-37856","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhy one analyst thinks possible recession could still arrive by February | iFintechWorld<\/title>\n<meta name=\"description\" content=\"It\u2019s been a full year since one of the U.S. bond market\u2019s most reliable gauges of impending recessions started to consistently flash worrisome signals,\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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