Ten Charts for 2023 | The Big Conversation | Refinitiv

TL;DR

A comprehensive analysis of 10 key charts that will define the outlook for the global economy in 2023.

Transcript

this year has been one of the most difficult on  record for a combined Bond and Equity portfolio   and as a result of this performance many  professionals have been forecasting an   imminent recession but at the same time the U.S  labor market has remained relatively resilient   in this our last episode of 2022 we'll look at  10 key charts for next... Read More

Key Insights

• 🧑‍🏭 Unemployment levels will be a crucial factor in determining the potential recession's depth and its impact on the equity market.
• 😮 The housing and construction sectors, particularly in the US, will play a significant role in the rise of unemployment and potential recession.
• 😮 Bond yields and the stock market often exhibit a correlation, with rising yields coinciding with a decline in equities during recessionary periods.
• 📡 The shape of the yield curve could provide insights into future economic conditions, with an inverted yield curve potentially signaling a recession.
• ☠️ The Federal Reserve's policy response - a pivot or pause in interest rate hikes - will depend on their assessment of a potential recession and inflationary pressures.
• 👹 Currency trends, such as the weakening of the Japanese Yen against the Australian Dollar, can indicate a potential global growth slowdown.
• 😀 Winners of 2022, particularly in commodities, energy, and mining sectors, may face risks in a true recessionary slowdown.

Questions & Answers

Q: How is unemployment related to the possibility of a recession?

Unemployment levels have historically preceded recessions, and the depth of a recession often determines the rise in unemployment. A significant increase in unemployment suggests a greater likelihood of a recession.

Q: What impact does the stock market typically experience during a recession?

The S&P 500 tends to reach a major low during or after a recession. If a recession is still expected, there may be a major low ahead for the stock market, particularly if unemployment rises.

Q: How are bond yields and the stock market connected?

Rising bond yields and a sell-off in bonds often coincide with a decline in the stock market. If unemployment rises and recession fears grow, there could be a correlation event in which all equities sell off.

Q: Why is the yield curve an important indicator?

The shape of the yield curve provides insights into market expectations of economic conditions. If the yield curve starts to invert, indicating falling long-term yields relative to short-term yields, it could suggest a recession is on the horizon.

Q: How could the Fed's policy response affect the economy?

The Fed's decision to pivot or pause in terms of interest rate hikes will depend on their assessment of a potential recession. They may wait for a recession to occur before adjusting rates, as being too early could lead to inflationary pressures.

Q: What are the signs of a global economic slowdown?

Currency trends, such as the weakening of the Japanese Yen against the Australian Dollar, can indicate a potential global growth slowdown. If the Australian Dollar weakens, it suggests global growth concerns.

Q: In which sectors could potential winners of 2022 face risks in 2023?

Commodities, energy, and mining stocks that performed well in 2022 could face risks in a true recessionary slowdown. Despite long-term positive stories, a global recession could impact demand and lead to financial pressures.

Q: How could energy prices impact the global economy in 2023?

The energy crisis, though temporarily subdued, is likely to resurface in 2023. Energy costs could remain high, impacting economies and potentially causing further volatility in the global markets.

Summary & Key Takeaways

• The US labor market remains resilient despite concerns of an imminent recession.

• Unemployment levels will be a crucial factor in determining the depth of a potential recession and its impact on the equity market.

• The housing and construction sectors, particularly in the US, will play a significant role in the rise of unemployment and the potential recession.