Goodnight gif

Some Global Macro for your Sunday night / Monday morning reading pleasure. . .
tl(won't)r? ->

• GS US Growth Forecast ('23) above consensus (1.6% annual) & 12-mo recession probability below consensus @ 35% (half banking, half debt ceiling risk)
• Rates market showed concern over banking turmoil triggering recession.... not materializing. Only modest tightening of lending standards so far and real incomes rebounding per latest data
• So far, Fed seems to have guided us into gradual disinflation in wages/prices; latest Apr CPI m/m gain transitory (used cars)
• GS thinks falling job openings w/o commensurate recession is a 'sign that this time is different' (note, we disagree on this one!)
• Fed is likely done; but market is probably wrong in pricing cuts into YE'23 and into '24. Higher for longer..
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11-May-23 GS Global Views (Jan Hatzius) \"Climbing the Wall of Worry\"
( 1 ) Our US growth forecast for 2023 remains at a well-above-consensus 1.6% (annual average) and our judgmental 12-month recession probability at a well-below-consensus 35%. We would split the latter number roughly evenly into the probability that the current banking turmoil—or another near-term shock such as a debt limit crisis—pushes the economy into recession in the next quarter or two, and the probability that upside inflation surprises force the Fed to deliver more monetary tightening that raises recession risk in late 2023/early 2024. Both outcomes are possible, but neither is likely in our view.
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( 2 ) Rates market participants have been most concerned about the risk that the banking turmoil will trigger a near-term recession. But two months after the SVB failure, the evidence for a big impact remains surprisingly limited. In terms of economic data, Q2 GDP is tracking at 1.8%, the ISMs edged up in April, and the employment report surprised to the upside. (Also note that the pop in initial jobless claims last week was distorted by apparent noise in Massachusetts.) In terms of credit availability, the Fed's Senior Loan Officer's Survey showed only a modest further increase in the share of banks tightening lending standards and the April NFIB survey showed a surprising decline in the share of small firms reporting that credit was harder to get. To be sure, anecdotal evidence and the continued pressure on the stock prices of regional banks suggest that the impact is still building, so it is premature to revise down our estimate that banking stress will subtract 0.4pp from US growth on a Q4/Q4 basis this year. But the hit would need to be much bigger than 0.4pp to push the economy into recession given the support from other factors such as the rebound in real income and the stabilization in the housing market.
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( 3 ) The news related to inflation (and thus the longer-term risk of recession) also remains reasonably encouraging. Although the CPI ex food and energy rose 0.41% in April, one-third of the increase was due to an outsized (and almost certainly temporary) 4.4% increase in used car prices. Smoother measures of underlying inflation such as the Cleveland Fed's trimmed-mean CPI show ongoing, if gradual, progress. And while the Q1 ECI and April average hourly earnings both surprised on the high side, our sequential wage tracker has continued to slow from a peak of 6% in early 2022 to 4.5% in early 2023. At least so far, our read is that Fed officials have managed to put the economy on a course of gradual wage and price disinflation without the recession predicted by a large majority of economists.
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( 4 ) Will this smooth adjustment continue? Much depends on whether job openings can keep falling without a large increase in the unemployment rate - or in other words, whether the "Beveridge curve" will continue to shift inwards. So far, the answer has been yes, and it is hard to overstate how unusual the recent experience has been. In the entire postwar period, there has never been a decline in the job openings rate as large as what we have seen over the past year that was not accompanied by a recession and a large rise in the unemployment rate. Many economists take this observation as a sign that the worst is yet to come; we take it, instead, as a sign that "this cycle is different."
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( 5 ) After the historic volatility of the past 18 months, Fed policy has entered calmer waters. Chair Powell's May 3rd press conference and the subsequent data have strengthened our conviction that the FOMC will pause at the Jun 13-14 meeting. Markets are appropriately priced for this near-term view, but not for what is likely to happen thereafter. If the economy continues to grow, the unemployment rate remains below 4%, and underlying inflation comes down only slowly, as we expect, Fed officials are likely to keep rates unchanged at what they view as a restrictive level well into 2024. The risks to this baseline forecast are clearly on the downside, as the funds rate is much more likely to go from the current 5% to 3% than to 7%. But even on a probability-weighted basis, we think markets are pricing too much easing in late 2023 and 2024.
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( 6 ) Even as the Fed goes firmly on hold, the major European central banks still have work to do because the level of rates remains lower than in the US and the evidence for wage and price deceleration remains less compelling. In our forecast, both the ECB and the BoE deliver two more 25bp hikes to terminal rates of 3.75% and 5.00%, respectively. And we see rate risks in the Euro area as tilted to the upside, at least under our assumption that the recent weakness in German industrial activity will prove temporary. Just as in the US, we think the likelihood of a quick reversal after the peak is low. Our view is therefore hawkish relative to the forwards in both the Euro area and the UK.
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( 7 ) Even after the brisk rebound from the COVID lockdowns, we still see room for further recovery in China's service sector, especially in areas such as domestic travel and tourism. But with the fastest sequential pace now behind us, markets have turned their focus back to the longer-term challenges that underlie our cautious 2024 growth forecast, including a shrinking population, downward pressure on housing activity, and risk of US-China decoupling. In fact, some concerns about deflation have recently surfaced on the back of a slowdown in CPI inflation to just 0.1% year-on-year. We don't share those concerns in the near-future, but we do expect China to remain in a low-inflation environment in coming years, without the price surge that has been so prominent across most other economies during the post-COVID period.
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( 8 ) Under our above-consensus economic forecasts, markets should continue to climb the wall of worry in coming months. That said, two factors probably limit the upside. First, valuations of risk assets are already high, in absolute terms and relative to interest rates. Second, the soft landing that we forecast is still a work in progress and requires ongoing below-trend growth across the major advanced economies. This limits the room for much easier financial conditions and reinforces our view that the major central banks are further away from delivering rate cuts than the markets are now pricing...
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There you have it -> Goldman thinks market goes higher, doesn't seem to give much weight to any negative outcomes around debt ceiling / X-date, market repricing the Fed rate path, or ongoing bank crisis or gamma in lending standards. OK then. Goodnight!
https://i.redd.it/tjekq3kcowza1.gif

Of course with the exception being Solanin: An Epilogue, but I don’t wanna pay £300 for 19 pages…

We had a short conversation and I decided to give her my number by the end of it because usually everyone stops responding on tinder unless you get info soon. She doesn’t add me so I double text later. I take it she has no interest in actually talking more after matching?