Aurelia Butler

While the elevated risk of a recession persists, the report indicates that recent economic data have not significantly worsened, suggesting a somewhat stabilized outlook. “While we dropped our recession call in the spring, we have been consistently highlighting that the economy was undergoing a significant slowdown (from over 3% growth in 2023 to around 1½ in 2024 (Q4/Q4)),” the analysts said.This slowdown has raised concerns among market participants, particularly following disappointing employment data. However, despite these concerns, UBS maintains that the probability of a recession, while elevated, has not shown any abrupt changes.UBS tracks 16 leading hard data indicators to gauge economic health. As of June 2024, these indicators suggest a continued sideways movement, with no clear upward or downward momentum. The aggregate hard data factor, which measures the average of these indicators, has remained just below zero, indicating a lack of significant improvement or deterioration. The implied recession probability from this model stands at 80%, slightly lower than earlier in the year but still concerningly high.Interestingly, the current contractionary phase of the hard data cycle has lasted for 28 months, making it the longest such period without triggering a recession. Historically, the pre-Global Financial Crisis (GFC) contraction phase lasted 20 months, with an average of 12 months before a recession was declared by the National Bureau of Economic Research (NBER). This prolonged period of contraction without a recession suggests that while certain interest-sensitive and cyclical sectors remain weak, overall consumer strength has so far mitigated the risk of a downturn.UBS also assesses recession risk by analyzing the slope of the yield curve, a key indicator of market expectations for future economic activity. The yield curve has been inverted since July 2022, a traditional signal of an impending recession. However, the probability of a recession based on the yield curve has decreased to 50% in July 2024, down from 60% in the spring and 90% a year ago. This decline reflects a slight easing in the depth of the yield curve inversion, particularly in the 2 to 7-year maturity range.The yield curve’s prolonged inversion without a subsequent recession is unusual, marking the longest such period on record. This anomaly may indicate that while the signal remains concerning, other factors, such as strong consumer spending and labor market resilience, are helping to stave off a recession.UBS also monitors credit market indicators, including leverage and interest coverage ratios, and data from the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS). The recession probability from these credit market indicators currently stands at 28%, a level that has remained relatively stable since it began rising in the second quarter of 2022. While this probability is lower than those derived from hard data and yield curve models, it still underscores the fragility of the current economic expansion.The U.S. economy’s resilience has largely been supported by strong consumer spending, particularly among upper-income households benefiting from positive wealth effects and ample liquidity. However, UBS warns that as fiscal support diminishes, the economy’s reliance on this consumer strength makes it vulnerable to shocks. The labor market’s gradual slowdown, while in line with UBS’s projections, adds to the fragility of the expansion, emphasizing the need for cautious optimism. More

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The markets are currently banking on aggressive interest rate cuts by the Federal Reserve, but a rise in inflation could quickly unravel these expectations, leading to what Gavekal terms a “nasty shock.”They note that the futures market is currently pricing in a 100% certainty of a rate cut on September 18, with a 50% chance of a more substantial 50 basis point cut.Furthermore, there is an expectation of a full 100 basis point cut by the end of 2024.However, Gavekal cautions that an uptick in inflation could trigger a “violent position adjustment,” forcing investors to rethink the Fed’s trajectory.According to Gavekal, the debate within their team reflects the uncertainty in the broader market. Some analysts believe structural factors will push inflation above the Fed’s 2% target, while others argue that factors like a contraction in money supply and easing supply bottlenecks will curb inflation.”Yes, July’s employment report showed the labor market continues to cool. This implies wage growth will continue to moderate, reinforcing the disinflation narrative. At the margin, it adds to the case for rate cuts. But an uptick in inflation would undermine this case in the short term,” said Gavekal.The Fed’s willingness to cut rates hinges on inflation cooperating. If inflation surprises on the upside, the Fed might delay cuts, causing a rebound in the US dollar, higher bond yields, and pressure on US equities, especially growth stocks.Gavekal suggests that in the event of such an inflation scare, the safest assets might be US dollar cash, T-bills, and inflation-protected treasuries. As Gavekal notes, with so much riding on the upcoming CPI release, it may be prudent for investors to brace for potential volatility on Wednesday. More

WASHINGTON (Reuters) – The Biden administration on Monday unveiled new rules and efforts targeting consumer annoyances ranging from hard-to-cancel subscriptions, cumbersome insurance forms, and not being able to get a live customer service agent on the phone. The “Time is Money” initiative is aimed at cracking down on endless hold times or deliberately complicated procedures that cost consumers, said Neera Tanden, U.S. President Joe Biden’s domestic policy adviser.She said it shouldn’t take 45 minutes to cancel a subscription that it took one click to order, and people shouldn’t be forced to print out complicated forms to file an insurance claim. Often they give up, she said, leaving companies holding onto money that consumers could spend elsewhere.”These seemingly small inconveniences don’t really happen by accident. They have huge financial consequences,” she said.The push is part of an effort by Biden aimed at easing strains on voters’ pocketbooks amid persistent inflation concerns that have eroded support for the Democratic Party. Vice President Kamala Harris, now the Democratic presidential candidate, is making a similar case as she campaigns across the country.Business executives have chafed at what they see as efforts by Democrats to vilify and over-regulate industry. Republican presidential candidate Donald Trump has campaigned on relieving companies of regulatory burdens.The new actions use existing government oversight tools and are not aimed at “shaming corporations writ large,” Tanden said. They do not require congressional approval, an official said, and some will be phased in over coming months. The Federal Trade Commission is accepting comments on a proposed rule that would require companies to make it as easy to cancel a subscription or service as it was to sign up, the official said.The Federal Communications Commission is moving on Monday toward setting similar requirements for cable, broadband and cellphone service.The Labor and Health and Human Services departments will also write to big healthcare companies and insurers, urging them to allow consumers to file forms online.Several U.S. agencies are working on new rules requiring companies to offer customers a single button to reach a real person, instead of navigating a lengthy phone tree “doom loop,” the officials said.The Consumer Financial Protection Bureau is also planning to issue rules cracking down on “time-wasting chatbots” used by banks, the official said. More

The bank’s economists note that while market reactions to the latest Bank of Japan (BoJ) decisions and softer U.S. payrolls data have been strong, they do not signify a fundamental shift in economic conditions.Specifically, the increased market focus on central bank actions, particularly the Bank of Japan’s (BoJ) surprising tone on future rate hikes, set the stage for an increased perception of risk around U.S. economic growth. In the unexpected decision on July 31, the BoJ hiked its short-term policy target to 0.25%, its highest in 15 years, from a zero-to-0.1% range“The market’s initial reaction to the decision itself was relatively calm, but in the press conference following the decision, Gov. Ueda surprised the markets by talking about future hikes,” Morgan Stanley economists explained.This move was compounded by the downside surprise in July’s U.S. payrolls, which missed expectations with a print of 114,000.Despite the subsequent pullback in global markets, economists remain firm in their forecast.”We keep our longstanding call for a 25bps cut by the Fed in September,” they said in a Monday note.Morgan Stanley believes that the Fed’s dual mandate—balancing inflation with economic growth—has come into sharper focus as inflationary pressures have softened. This shift has led the market to expect a more growth-sensitive approach from the Fed, further bolstering the case for a rate cut.Economists also pointed out that the U.S. economy continues to show resilience, with Q2 2024 GDP growth at 2.6% and consumer spending up 2.3%. The unemployment rate, though slightly higher at 4.3%, still reflects a relatively healthy labor market. These indicators, according to Morgan Stanley, suggest that the U.S. is on track for a “soft landing,” not a recession.“We think the economy is on its way to a soft landing, but the market is on alert for all signs of more dramatic weakness. The data do not yet indicate an accelerated deterioration of the economy,” the note states.Looking ahead, the bank highlighted that a potential interplay between Fed cuts and BoJ hikes could bolster the Japanese yen. However, economists said that their initial view remains unchanged, predicting that the BoJ will hike rates in January “and indeed our forecast implies that real rates will stay negative through the end of 2025.” More

WUHAN (Reuters) -Liu Yi is among China’s 7 million ride-hailing drivers. A 36-year-old Wuhan resident, he started driving part-time this year when construction work slowed in the face of a nationwide glut of unsold apartments.Now he predicts another crisis as he stands next to his car watching neighbours order driverless taxis.”Everyone will go hungry,” he said of Wuhan drivers competing against robotaxis from Apollo Go, a subsidiary of technology giant Baidu (NASDAQ:BIDU).China’s Ministry of Industry and Information Technology declined comment.Ride-hailing and taxi drivers are among the first workers globally to face the threat of job loss from artificial intelligence as thousands of robotaxis hit Chinese streets, economists and industry experts said.Self-driving technology remains experimental but China has moved aggressively to green-light trials compared with the U.S which is quick to launch investigations and suspend approvals after accidents.At least 19 Chinese cities are running robotaxi and robobus tests, disclosures showed. Seven have approved tests without human-driver monitors by at least five industry leaders: Apollo Go, Pony.ai, WeRide, AutoX and SAIC Motor.Apollo Go said in May it planned to deploy 1,000 robotaxis in Wuhan by year-end. In 2022, it had forecast it would be operating in 100 cities by 2030.In a statement issued on Aug. 12, Apollo Go said it expected the transition to autonomous transport in China to be “gradual and well-regulated.””Our robotaxi fleet currently complements, rather than replaces, existing transport options,” the company said.It added that the rollout of autonomous taxis would also create jobs at Apollo Go in monitoring and testing and in analysing the data gleaned from the ongoing trials.Pony.ai, backed by Japan’s Toyota Motor (NYSE:TM), operates 300 robotaxis and plans 1,000 more by 2026. Its vice president has said robotaxis could take five years to become sustainably profitable, at which point they will expand “exponentially”.WeRide is known for autonomous taxis, vans, buses and street sweepers. AutoX, backed by e-commerce leader Alibaba (NYSE:BABA) Group, operates in cities including Beijing and Shanghai. SAIC has been operating robotaxis since the end of 2021.”We’ve seen an acceleration in China. There’s certainly now a rapid pace of permits being issued,” said Boston Consulting Group managing director Augustin Wegscheider. “The U.S. has been a lot more gradual.”Alphabet (NASDAQ:GOOGL)’s Waymo is the only U.S. firm operating uncrewed robotaxis that collect fares. The company has a total of about 700 cars operating in San Francisco, Los Angeles, Phoenix and Austin, Texas, but not all of them are in service at all times, a company spokesperson said.Cruise, backed by General Motors (NYSE:GM), restarted testing in April after one of its vehicles hit a pedestrian last year. Cruise said it operates in three cities with safety its core mission.”There’s a clear contrast between U.S. and China” with robotaxi developers facing far more scrutiny and higher hurdles in the U.S., said former Waymo CEO John Krafcik.Robotaxis spark safety concerns in China, too, but fleets proliferate as authorities approve testing to support economic goals. Last year, President Xi Jinping called for “new productive forces”, setting off regional competition.Beijing announced testing in limited areas in June and Guangzhou said this month it would open roads citywide to self-driving trials.Some Chinese firms have sought to test autonomous cars in the U.S. but the White House is set to ban vehicles with China-developed systems, said people briefed on the matter.Boston Consulting’s Wegscheider compared China’s push to develop autonomous vehicles to its support of electric vehicles.”Once they commit,” he said, “they move pretty fast”.’STUPID RADISHES’China has 7 million registered ride-hailing drivers versus 4.4 million two years ago, official data showed. With ride-hailing providing last-resort jobs during an economic slowdown, the side effects of robotaxis could prompt the government to tap the brakes, economists said.In July, discussion of job losses from robotaxis soared to the top of social media searches with hashtags including, “Are driverless cars stealing taxi drivers’ livelihoods?”In Wuhan, Liu and other ride-hailing drivers call Apollo Go vehicles “stupid radishes” – a pun on the brand’s name in local dialect – saying they cause traffic jams.Liu worries, too, about the impending introduction of Tesla (NASDAQ:TSLA)’s “Full Self-Driving” system – which still requires human drivers – and the automaker’s robotaxi ambitions.”I’m afraid that after the radishes come,” he said, “Tesla will come.”Wuhan driver Wang Guoqiang, 63, sees a threat to workers who can least afford disruption.”Ride-hailing is work for the lowest class,” he said, as he watched an Apollo Go vehicle park in front of his taxi. “If you kill off this industry, what is left for them to do?”Baidu declined to comment on the drivers’ concerns. In response to a question about the profitability of the service, Baidu referred Reuters to comments in May by Chen Zhuo, Apollo Go’s general manager. Chen said the firm would become “the world’s first commercially profitable” autonomous-driving platform.Apollo Go loses almost $11,000 a car annually in Wuhan, Haitong International Securities estimated. A lower-cost model could enable per-vehicle annual profit of nearly $16,000, the securities firm said. By contrast, a ride-hailing car earns about $15,000 total for the driver and platform.’ALREADY AT THE FOREFRONT’Automating jobs could benefit China in the long run given a shrinking population, economists said.”In the short run, there must be a balance in speed between the creation of new jobs and the destruction of old jobs,” said Tang Yao, associate professor of applied economics at Peking University. “We do not necessarily need to push at the fastest speed, as we are already at the forefront.”Eastern Pioneer Driving School has more than halved its instructor number since 2019 to about 900. Instead, it has teachers at a Beijing control centre remotely monitoring students in 610 cars equipped with computer instruction tools.Computers score students on every wheel turn and brake tap, and virtual reality simulators coach them on navigating winding roads. Massive screens provide real-time analysis of driver tasks, such as one student’s 82% parallel-parking pass rate.Zhang Yang, the school’s intelligent-training director, said the machines have done well.”The efficiency, pass rate and safety awareness have greatly improved.” More

The future path of U.S. interest rates continues to be investors’ main focus, and thus the release of U.S. consumer price data on Wednesday will be the week’s key economic data number.Federal Reserve Governor Michelle Bowman noting some further “welcome” progress on inflation in the last couple months in an interview on Saturday, softening her usually hawkish tone, but still added inflation remains “uncomfortably above” the central bank’s 2% goal.The Fed at the end of July kept the policy rate in the same 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool. July CPI data is expected to show that that inflation continued to edge closer to the Fed’s 2% annual target, with forecasts tipping annual core inflation to fall a tick to 3.2%, the lowest since April 2021. Fed fund futures imply a 49% chance of a half-point rate cut in September, after climbing as high as 100% at one point last week.U.S. stock futures edged higher Monday, with investors cautious at the start of the week that includes the release of key inflation data as well as important earnings from the retail sector. By 04:00 ET (08:00 GMT), the Dow futures contract was 40 points, or 0.1%, higher, S&P 500 futures climbed 11 points, or 0.2%, and Nasdaq 100 futures rose by 60 points, or 0.3%.The main Wall Street indices ended last week with minor losses, representing something of a recovery after the rout at the start of the week.The jobless claims data helped alleviate investors’ concerns about the strength of the labor market and state of the U.S. economy, and now attention turns to the second part of the Federal Reserve’s mandate – the consumer price index [see above].Investors will also get the chance to hear from several Fed officials including Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker and Chicago Fed President Austan Goolsbee.Comments from a trio of Fed policymakers indicated on Thursday that they were more confident that inflation is cooling enough to cut rates.The quarterly earnings season is in the final stages, with the majority of companies having already reported their quarterly financial results.But there are still a few U.S. notable names due to report in the coming week including retailers Home Depot (NYSE:HD) and Walmart (NYSE:WMT).Investors will be on the lookout for what retailers have to say about the resilience of consumer spending, a major driver of growth in the economy, particularly given some recent signs of weakness in economic data.Other big names on the earnings docket are Cisco Systems (NASDAQ:CSCO) and Fox Corporation (NASDAQ:FOXA).In Europe, Switzerland’s largest bank UBS (SIX:UBSG) reports earnings on Wednesday, while it’s a big week for the insurance sector, with Hannover Re (OTC:HVRRY), Aviva (LON:AV), NN Group (AS:NN) (NASDAQ:NNBR) and Admiral (LON:ADML) set to report. Some of China’s biggest internet firms are also set to report their June quarter results this week, including Tencent Holdings (OTC:TCEHY), Alibaba (NYSE:BABA) Group and JD (NASDAQ:JD).com.The U.K. has a busy economic data calendar this week, as investors look for clues as to whether the Bank of England will continue its rate-cutting cycle next month.The BoE cut rates for the first time since 2020 at the start of this month and markets are currently pricing in a roughly 33% chance of another quarter point cut at its September meeting.Data on wage growth is due out on Tuesday, followed a day later by inflation figures, which will be closely watched for indications of lingering price pressures, particularly in the still hot services sector.Catherine Mann, an external member of the Bank of England’s Monetary Policy Committee, said in a podcast released on Monday that goods and services prices were set to rise again and wage pressures in the economy could take years to dissipate.”There is an upwards ratchet to both the wage setting process and the price process and  …  it may well be structural, having been created during this period of very high inflation over the last couple of years,” she said.”That ratchet up will take a long time to erode away,” she added.Mann voted against this month’s cut in interest rates, in what was a tight 5-4 decision.Crude prices rose Monday, climbing for the fifth successive session as concerns over the U.S. economy waned while geopolitical tensions in the Middle East remained a support. By 04:00 ET, the U.S. crude futures (WTI) climbed 0.9% to $77.55 a barrel, while the Brent contract rose 0.7% to $80.25 a barrel.Both crude benchmarks gained more than 3% last week, the first positive week in five.Iran and Hezbollah have vowed to retaliate for the assassinations of Hamas leader Ismail Haniyeh and Hezbollah military commander Fuad Shukr.Axio reported on Sunday that Israeli intelligence believes Iran will attack Israel directly and within days. Fears that a bigger war in the Middle East will disrupt oil supplies from the crude-rich region have seen traders attach a greater risk premium to oil prices. Encouraging economic data from the U.S., suggesting that a recession in the world’s biggest fuel consumer may not be imminent, helped the oil market last week. More