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US: Recession time? – Nordea Markets

In line with analysts at Nordea Markets, tightening monetary circumstances seen since early November are placing stress on the US economic system, with wider credit score spreads and weaker equities being the primary culprits, which now level to beneath 50 ISM Manufacturing readings three to 4 months from now.

Key Quotes

“The ISM might proceed to drop – and drop swiftly in response to our most bearish fashions. Essentially the most forward-looking element of the ISM index, New Orders, dropped to 51.1 from 62.1 in November. It’s admittedly slightly laborious to see any trough forthcoming proper now. The ISM Manufacturing Index has not dropped >5 index factors outdoors of recessions since January 1984.”

“In Europe, this week’s weak Swedish Manufacturing PMI now additionally means that the Euro-area PMI will drop beneath 50 inside three to 4 months from now. It’s in all probability nonetheless an even bigger headache for the ECB to deal with weakening development momentum than it’s for the Fed.”

“If we’re proper that slowing central financial institution asset purchases (and shortly mixture central financial institution stability sheet contractions) are the principal causes behind the latest weakening sentiment for dangerous belongings, then concessions from the Fed, ECB or Financial institution of Japan are in all probability wanted to actually reverse the present market course.”

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