The steady drumbeat of warnings that the American economy is careening towards a recession finally struck a nerve on Wall Street.
Investors who had tuned out warnings for the past two months — from the most inverted Treasury yield curve in four decades to a wipeout for 2022’s heady oil price gains — began trading as if the biggest threat to risk assets was now a looming downturn in growth.
Cyclical stocks led the S&P 500 to a 3.4 per cent drop in the week after the equity benchmark failed to hold above its average price for the past 200 days.
While optimism that the Fed would slow the pace of rate increases had stoked a 14 per cent rally since mid-October, investor moods have now darkened with worries that such a move, when it does come, will be the mark of an economy laid low.
Already signs are emerging that the growth is buckling under the Fed’s aggressive tightening. The US services sector contracted last month. Although the labour market remains sturdy, some weakness has appeared, most recently in another rise in continuing claims for jobless benefits.
At the same time, inflation may have peaked but it’s still elevated enough to keep the Fed vigilant, raising the risk it will overtighten.
“We will shift from seeing ‘bad data’ as being ‘good’ to bad data being bad because it is a signal the economy is weakening faster and worse than most expected,” said Peter Tchir, head of macro strategy at Academy Securities.
Markets have started trading the stream of gloomy economic news as bad, rather than a reason to rally on the prospect for easier Fed policy. At the same time, inflation remains elevated — evidenced by an unexpectedly rapid rise in producer prices last month — and the central bank will render its final policy verdict of the year on Wednesday. Taken together, it was enough to squash the fall rally.
Since equities peaked on the final day of November, energy shares have led the retreat, a departure from all three previous selloffs of 2022 when raging inflation spurred demand for materials producers. Companies that are more sensitive to the economy, like financial firms and makers of consumer products, are among the laggards in December.
The shift in narrative is also obvious in fixed income. Earlier in 2022 when the inflation scare was raging, bonds tumbled in each of the three instances when the S&P 500 fell at least 10 per cent from a peak.
Now bonds have begun to reclaim their place as a recession hedge. On Wednesday, a rally in long-dated debt pulled 30-year yields below 3.5 per cent, a level last seen in September. The iShares 20+ Year Treasury Bond exchange-traded fund has climbed 9 per cent in the past three weeks.
“If you’re buying stocks based on the idea that lower interest rates are coming at some point in the future, unfortunately that implies that a weaker economy is also coming at some point in the future,” said Steve Sosnick, chief strategist at Interactive Brokers. “So be very careful what you wish for.”
The message was endorsed at the highest echelons of Wall Street in recent days, where bank chiefs had a uniformly grim outlook for slowing growth and corporate earnings. Even sellside analysts, predisposed to talk up assets they sell, have been sounding notably downbeat, predicting a decline in 2023.
We will shift from seeing ‘bad data’ as being ‘good’ to bad data being bad because it is a signal the economy is weakening faster and worse than most expected
Peter Tchir,
head of macro strategy at Academy Securities
The average projection of strategists tracked by Bloomberg is for the S&P 500 to end next year at just 4,009 — their most pessimistic call since at least 1999.
Positioning and trading patterns also showed a shift away from risk assets. Investors exited global stocks at the fastest pace in five months, dumping $35 billion in the past three weeks after they’d amassed $23 billion just a week earlier, according to EPFR data. Signals in the breadth of moves also reinforced the fleeting nature of recent gains, mirroring conditions that presaged the end of rallies in March and August.
Technical levels that had spurred buying in November buckled in the week. The S&P 500 failed to hold above its 200-day moving average and then slid through a retracement level that had given succor to bulls.
What complicates things further is that the November’s equity rally has triggered the fastest easing in financial conditions since March 2020, according to a Goldman Sachs Group gauge, casting doubts on the Fed’s ability to switch to looser policy starting next year.
Fed policymakers appear determined to see their tightening campaign through to peak of about 5 per cent, after being caught out by the intensity and staying power of price pressures. That’s bad news for an economy that looks set to contract at some point next year.
“There’s a lot more pain that has to come through,” said Justin Burgin, director of equity research at Ameriprise Financial. “We’ve barely seen the lag effect of the fastest rate hike in history.”
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
The specs
Engine: Dual 180kW and 300kW front and rear motors
Power: 480kW
Torque: 850Nm
Transmission: Single-speed automatic
Price: From Dh359,900 ($98,000)
On sale: Now
What is blockchain?
Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.
The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.
Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.
However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.
Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.
Mubadala World Tennis Championship 2018 schedule
Thursday December 27
Men's quarter-finals
Kevin Anderson v Hyeon Chung 4pm
Dominic Thiem v Karen Khachanov 6pm
Women's exhibition
Serena Williams v Venus Williams 8pm
Friday December 28
5th place play-off 3pm
Men's semi-finals
Rafael Nadal v Anderson/Chung 5pm
Novak Djokovic v Thiem/Khachanov 7pm
Saturday December 29
3rd place play-off 5pm
Men's final 7pm
RESULTS
Cagliari 5-2 Fiorentina
Udinese 0-0 SPAL
Sampdoria 0-0 Atalanta
Lazio 4-2 Lecce
Parma 2-0 Roma
Juventus 1-0 AC Milan
Key findings of Jenkins report
- Founder of the Muslim Brotherhood, Hassan al Banna, "accepted the political utility of violence"
- Views of key Muslim Brotherhood ideologue, Sayyid Qutb, have “consistently been understood” as permitting “the use of extreme violence in the pursuit of the perfect Islamic society” and “never been institutionally disowned” by the movement.
- Muslim Brotherhood at all levels has repeatedly defended Hamas attacks against Israel, including the use of suicide bombers and the killing of civilians.
- Laying out the report in the House of Commons, David Cameron told MPs: "The main findings of the review support the conclusion that membership of, association with, or influence by the Muslim Brotherhood should be considered as a possible indicator of extremism."
Dubai World Cup nominations
UAE: Thunder Snow/Saeed bin Suroor (trainer), North America/Satish Seemar, Drafted/Doug Watson, New Trails/Ahmad bin Harmash, Capezzano, Gronkowski, Axelrod, all trained by Salem bin Ghadayer
USA: Seeking The Soul/Dallas Stewart, Imperial Hunt/Luis Carvajal Jr, Audible/Todd Pletcher, Roy H/Peter Miller, Yoshida/William Mott, Promises Fulfilled/Dale Romans, Gunnevera/Antonio Sano, XY Jet/Jorge Navarro, Pavel/Doug O’Neill, Switzerland/Steve Asmussen.
Japan: Matera Sky/Hideyuki Mori, KT Brace/Haruki Sugiyama. Bahrain: Nine Below Zero/Fawzi Nass. Ireland: Tato Key/David Marnane. Hong Kong: Fight Hero/Me Tsui. South Korea: Dolkong/Simon Foster.
Museum of the Future in numbers
- 78 metres is the height of the museum
- 30,000 square metres is its total area
- 17,000 square metres is the length of the stainless steel facade
- 14 kilometres is the length of LED lights used on the facade
- 1,024 individual pieces make up the exterior
- 7 floors in all, with one for administrative offices
- 2,400 diagonally intersecting steel members frame the torus shape
- 100 species of trees and plants dot the gardens
- Dh145 is the price of a ticket
Info
What: 11th edition of the Mubadala World Tennis Championship
When: December 27-29, 2018
Confirmed: men: Novak Djokovic, Rafael Nadal, Kevin Anderson, Dominic Thiem, Hyeon Chung, Karen Khachanov; women: Venus Williams
Tickets: www.ticketmaster.ae, Virgin megastores or call 800 86 823
Libya's Gold
UN Panel of Experts found regime secretly sold a fifth of the country's gold reserves.
The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.
Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.
A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.
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Kamindu Mendis bio
Full name: Pasqual Handi Kamindu Dilanka Mendis
Born: September 30, 1998
Age: 20 years and 26 days
Nationality: Sri Lankan
Major teams Sri Lanka's Under 19 team
Batting style: Left-hander
Bowling style: Right-arm off-spin and slow left-arm orthodox (that's right!)
UAE currency: the story behind the money in your pockets
