Market Musings 220423: US Recession Hides In Shadows Of Strong Q1

22nd Apr '23 by Edmund Shing

9 comments 1852 reads

Market Musings 220423:

US recession hides in shadows of strong Q1

Don’t be fooled by today’s strength in US consumption

Summary

Strong Q1 economic activity globally, led by Europe, China…
But US recession still expected by H2 2023
Inflation is falling, led by the US
Q1 results season: okay so far in the US
Corporate profit margin boom in Europe
A word on precious metals

Podcast this week: Unravelling the impact of banking stress on the global economy

Edmund Shing and Guy Ertz discuss the events leading to the banking stress and the ensuing impact.

· The background

· The events contributing to the banking stress

· The economic impact

· Investment recommendations

Recession lurks in the shadow of a strong Q1

A US recession in the second half of 2023 is now becoming the consensus. This is something I've believed in for quite a while now. This week, key indicators such as the US Leading Economic Indicator (from the Conference Board) and the Philadelphia Fed manufacturing business outlook survey point to a looming US recession.

Philadelphia Fed manufacturing survey points to US recession

Source: Philadelphia Fed

However, Q1 2023 data has been surprisingly strong. US, Europe and UK economic activity data have all surprised to the upside in economic terms, led by services rather than manufacturing. Clearly, the consumer remains in good health despite the sharp rises in interest rates that we've seen in the US, UK and Europe over the last few months.

S&P Global composite PMIs turn up, lead GDP growth

As does the S&P Global US PMI (for now)

Source: S&P Global

UK consumer confidence rises to highest level in 1 year

Source: GfK

Remember that manufacturing tends to lead and services tend to follow. So the fact that services are so strong today but manufacturing is weak everywhere suggests that at least a modest US recession is still coming.

Of course, another point helping the global economy in the first quarter has been…

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Silver Moon

22nd Apr '23

There definitely was a race to put shop prices up Edmund, those companies who got in first got away with the largest rises before people got wised-up. Here's hoping you are right about the precious metal miners, especially the ones unable to pay investors a return as yet.

yiannos1

23rd Apr '23

A recession before the 2024 president elections?

Cuddlesticks

Super article again!

Whilst monetary policy is no doubt a force slowing economic activity there are other factors boosting activity, demand and even inflation.

Re-shoring from China, the re-arming of the west with top 10 economies (such as Japan, Germany, South Korea, UK) adding hundreds of billions to defence budgets, fossil fuel investment catch up (including the move to sovereign independence in the west) and green energy transition as well as stimulus packages such as the IRA in the US point to growth not recession.

The link below shows industrial construction in the US in rude health. With much of it government funded or deemed to be essential to survival I think this is less susceptible to economic downturn.

https://www.constructconnect.c...(PDF)/Construction_Industry_Snapshot_Package-February_2023.pdf

In summary, I suspect inflation, interest rates AND growth could all be higher for longer than consensus expects.

Metatron

Palladium and Platinum may be doing well but holders of Slp and Tharisa are worrying not benefiting.

Hot off the press is March's report of February activity.

To contradict my point above, the graphs show rapid reversals in growth from January to February. Although there is still year on year growth between Feb 2022 and Feb 2023 it points to the potential impact of rate rises and bank failures potentially impacting growth.

Despite this volatility there is a good summary on page 7 describing overall positive 'above trend' growth in the non residential construction sector and a positive outlook out 2025 and beyond.

https://www.constructconnect.c...(PDF)/Construction_Industry_Snapshot_Package-March_2023.pdf

To capitalise on the industrial and infrastructure trends mentioned above I think companies like CAT, LIN, HAL in the US and AT. and RNO in the UK could outperform market expectations despite being categorised as cyclical.

BenHazz

I agree, fingers crossed for a bounce in Rhodium, that's what SLP needs to see a decent SP climb. Platinum maybe in the company name but Rhodium brings home the cash.

Snowbum

Indeed, but therein lies the bear case for Sylvania Platinum (LON:SLP) , as the primary demand for Rhodium is (was) catalytic converters. With governments around the world now pressing the case for EV's, this is a structural reduction in demand for Rhodium as far as I can tell...

It's interesting that the peak on SLP came around the same time as the EU announced their effective ban on new ICE cars by 2035...

Epitychia

24th Apr '23

Gold and silver on sale. Buy before the jump.

Threepeat

Thanks Edmund.

A straightforward and easily digestible article for people who generally don't follow the macro trends and like them condensed.

Thanks again

Market Musings 220423: US recession hides in shadows of strong Q1