Is a Recession Coming? Watch Out for These 5 Signs

The Fear of Recession in the Global Markets

The word “recession” has forcefully imposed itself among investors’ fears in this unpredictable week for the markets.
As stock exchanges prepare to conclude the last trading day before the weekend break, analysts are still wondering what to really expect in the coming months.
The focus is on the United States, both for the expected decisions of the Fed on the first rate cut, which is late in coming, and also on macro data.

An economy cooling down, with the recent increase in the unemployment rate, has triggered a new wave of fears that the United States are on the brink of a recession.
Weak labor data have shaken confidence in a soft landing for the world’s largest economy, causing global stock markets to plummet and increasing bets on interest rate cuts.

Uncertainty and Market Indicators

The uncertainty is strong.
For example, yesterday, initial jobless claims dropped and offered a glimmer of optimism.
The probability of a recession is therefore uncertain.
Goldman Sachs has increased its odds of a contraction in the United States to 25%.
JPMorgan sees a 35% chance that the recession will begin before the end of the year.

Market Indicators

1.
Macro Data: In the United States, the unemployment rate jumped in July, almost reaching the highest level in the last three years, standing at 4.3%, amid a significant slowdown in hiring.
Many economists believe that the reaction to the data has been exaggerated, as the numbers could be distorted by immigration and Hurricane Beryl.

2.
Stock Indices: The global MSCI stock index has dropped by over 6% from July’s record highs, while the U.S.
S&P 500 index lost over 4% in August.
Despite this, analysts believe that stocks are far from signaling a recession.

3.
Rate Cuts: Encouraged by U.S.
employment data and a accommodative Federal Reserve, traders now estimate about 100 basis points of U.S.
interest rate cuts by the end of the year.

4.
Yield Curve: The bets on rate cuts have caused short-term U.S.
Treasury yields to fall, and the closely watched part of the yield curve that tracks the gap between 10 and 2-year Treasury yields turned positive for the first time since July 2022 on Monday.

5.
Copper Price: Known as “Dr.
Copper” for its proven experience as an indicator of expansion and contraction phases, the metal’s collapse to a 4 and a half month low this week firmly places it on the recession watchlist.
With traded prices around $8,750 per tonne, quarterly copper prices on the London Metal Exchange have fallen by about 20% from their all-time high in May, reflecting pessimism about global economic prospects.