Will There be a RECESSION in 2022? | The Big Conversation | Refinitiv | Summary and Q&A

TL;DR

Recession fears for 2022 are growing as an inverted yield curve and high inflation rates raise concerns.

Key Insights

• ✋ The inverted yield curve and high inflation rates have raised recession fears for 2022.
• 😮 Strong economic data, when adjusted for rising prices, indicates contraction rather than growth.
• ❤️‍🩹 Reports from major banks predict a recession by the end of the year.
• 🧑‍⚕️ An inverted yield curve implies reduced lending activity and potential implications for bank health.
• 😨 Market valuations and earnings expectations may be impacted by recession fears.
• 🔄 The Federal Reserve's aggressive stance on monetary policy suggests a counter-cyclical force in the event of a recession.
• ☠️ Eurodollar futures market indicators suggest the possibility of rate cuts in the first half of 2023 due to recession expectations.

Transcript

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Questions & Answers

Q: What is the relationship between an inverted yield curve and an economic recession?

An inverted yield curve, where short-term interest rates exceed long-term rates, has reliably preceded economic recessions since the 1970s, indicating potential demand destruction.

Q: How has strong economic data, such as retail sales, impacted recession fears?

Nominal economic data in the US, not adjusted for rising prices, has remained robust. However, removing the impact of inflation reveals contraction in figures like retail sales since March 2022.

Q: What are the implications of an inverted yield curve on lending activity and bank health?

Inverted yield curves often lead to reduced lending activity as banks are not incentivized to lend at lower rates in a slowing economy. This can impact bank health and net interest margins.

Q: How does a recession affect market valuations and earnings expectations?

Recession fears result in reduced earnings expectations for the overall market, impacting market valuations. As earnings drop, cheap valuations might not be as appealing to investors.

Summary & Key Takeaways

• Reports suggest that a recession may occur in 2022, supported by an inverted US Treasury yield curve and high inflation numbers.

• While strong economic data has kept recession fears at bay, the impact of rising prices on figures such as retail sales and wages indicates contraction.

• Analysts predict a recession by the end of the year, which could lead to reduced lending activity and implications for bank health and market valuations.