JP Morgan’s Michelle says the bond market is already anticipating a recession

Bloomberg – “Customers are returning to the bond market, especially corporate bonds.”said Michelle, chief investment officer at JPMorgan Asset Management (JPM), In a program Wall Street Week From Bloomberg TV Friday. “Because they renewed confidence in central banks“.

Central banks advanced sharply in interest rates in an effort to control inflation and to try to prevent economies from sliding into recession. In the week that ended, the European Central Bank raised interest rates for the first time in more than a decade.

A recent survey of Bloomberg Among the 44 economists who revealed that forecasts indicate that the United States Federal Reserve (FED) It raises rates again by 75 basis points next week, then lowers them to 50 basis points in September.

For this, and adding a forecast of a 75% recession, Michelle explained that the market is now “setting the price of what it thinks the Fed should do.” And the Federal Reserve is on the same page. “We’re talking about a federal funds rate of about 3.5% at the end of the year.”

The stock market had its best week in a month this week, but it hasn’t fully priced into recession over the next year, Erin Brown, portfolio manager for multi-asset strategy at Pacific Investment Management, told Bloomberg TV. “The market is pricing in stagnant growth,” he said. “I think it would be negative growth.”

Despite closing the week stronger, trimming the market’s decline this year to about 17%, stocks fell on Friday, Disappointing results from social media companies and weak economic data added to recession fears.

“The level has been low in earnings seasonBrown said. “Really what you’re hearing a lot from businesses right now is that the consumer is getting weaker, but you’re also starting to see business confidence weaken as well.”

Emphasizing fears of an economic slowdown, Treasuries extended an advance, pushing the 10-year bond yield to about 2.7%, While business activity deteriorated worldwide in July, according to a survey by S&P Global.

Ongoing inflation will continue to show up in second-quarter earnings, Brown said. “But what is new is that it is starting to become clear that the increase in financing costs is also starting to have an effect.”

Both agreed on the short-term outlook for Europe, saying that inflation is likely to remain structurally high and that the EU will continue to struggle against rising energy costs due to Russia’s war against Ukraine.

Despite this, the European Central Bank will do what it can to curb consumption “You can just raise interest rates to a certain point, maybe 1.5%, 1.75%, that’s it,” Michelle said.

“At the end of the day we like the sovereign debt there, but we like Germany,” he said. “We are not necessarily sold in Italy.”

Brown and Michel diverged on the outlook for the dollar, which fell this week after hitting an all-time high last week.

While Brown said he expects the dollar to continue rising, Michel said the US currency has “goed as far as it can go”.

Article by Victoria Cavalier.