A new home lot shows sold as other home construction begins in a new neighborhood in Grasonville, Maryland, on January 19, 2023.
Jim Watson | AFP | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Recession warning
HSBC Asset Management predicts that the U.S. will enter a recession in the fourth quarter of this year and remain in a recession throughout 2024. The euro zone is also expected to see its economy contract next year. However, one positive aspect of this forecast is that inflation is expected to decline rapidly, and HSBC anticipates that the Federal Reserve will cut interest rates by the end of this year.
Higher rates for longer
Christine Lagarde, President of the European Central Bank, has stated that inflation in the euro zone remains “too high and is set to remain so for too long.” Despite a May headline inflation rate of 6.1%, which is lower than April’s 7%, it still exceeds the ECB’s target of 2%. Lagarde has cautioned against any expectations of rate pauses or cuts in the near future.
The fourth industrial revolution
Dan Ives, managing director of Wedbush Securities, asserts that generative artificial intelligence is not mere hype, but rather the “fourth industrial revolution in progress.” Ives believes that AI will revolutionize our way of living and working, and it is already driving a new tech bull market. Unity, a software company, experienced a significant stock jump of over 15% following the launch of their AI marketplace.
[PRO] Seth Klarman on markets
During an exclusive interview with CNBC, Seth Klarman, a renowned investor from Baupost Group, highlighted a common mistake made by retail investors when purchasing index funds and identified a promising “hunting ground” for those seeking investment opportunities. The full interview can be watched here.
The bottom line
The talk of a recession grows louder by the day, with multiple experts giving their predictions.
Joseph Little, Global Chief Strategist at HSBC Asset Management, predicts a recession scenario similar to the one experienced in the early 1990s, with a projected GDP decline of 1-2% in their central scenario.
Marko Kolanovic, the top strategist at JPMorgan Chase, expects a more challenging environment for stocks, citing a decelerating economy and a probable recession starting in the fourth quarter of 2023 or the first quarter of 2024.
Seth Klarman, CEO of Baupost Group, suggests that the goal of the Federal Reserve is to cool down the economy, and one way to achieve that is by triggering a recession, possibly in early 2024.
However, recent economic data from the U.S. indicates a resilient economy that may defy these predictions.
Consumer confidence has unexpectedly risen to its highest level since January 2022, with fewer respondents expecting a recession (though the proportion is still high at 69.3%).
The housing market, often an early indicator of a downturn, has displayed surprising strength. In May, new home sales increased by 12.2% compared to April, while home prices rose by 1.3% month over month according to the Case-Shiller index.
Demand for durable goods, which include big-ticket purchases like televisions and transportation equipment, experienced a 1.7% acceleration in May, surpassing April’s 1.2% increase and defying the Dow Jones estimate of a 1% decline.
All these data points indicate that the U.S. consumer has not yet succumbed to higher interest rates and potentially uncertain economic prospects.
If Chris Senyek, Chief Investment Strategist at Wolfe Research, is correct in his expectation that “the U.S. consumer will be the #1 driver of the economic outlook,” then the strength of consumers may be enough to stave off a recession despite the multitude of recession predictions.
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