United States: A downturn is still in the cards

United States: A downturn is still in the cards

• Data released this week support our expectations for a recession in the second half of the year. The LEI continued to flash contraction as early signs of labor market weakening are starting to emerge. Meanwhile, a batch of housing data confirmed that a full-fledged housing market recovery is still far off.

• Next week: Durable Goods (Wed), GDP (Thu), Personal Income & Spending (Fri)

International: Global growth prospects continue to improve

• Early this week, China reported Q1-2023 GDP data, a widely anticipated data release. Q1 data offered markets an opportunity to gauge how China's economy performed after authorities lifted Zero-COVID policies around the end of last year. The key takeaway was that China's economy performed better than expected, growing 2.2% on a quarterly basis and 4.5% on a year-over-year basis.

• Next week: Central Bank of Turkey (Thu), Eurozone GDP (Fri), Bank of Japan (Fri).

Interest rate watch: Give thought to the pause

• The fastest pace of policy tightening since the early 1980s is winding down. Our forecast anticipates one more quarter-point rate hike at the upcoming FOMC meeting on May 3, after which we suspect the Fed will remain on hold until the fourth quarter. Had we not encountered a banking crisis, a few more rate increases might have been in the offing. However, the recent difficulties in the financial sector diminish the need for further hikes beyond May, in our view.

Credit market insights: Fed's Beige Book brings some color to recent financial turmoil

• On Wednesday, the latest edition of the Federal Reserve’s Beige Book was released, covering the month of March and through early April. The previous Beige Book was published in early March but quickly became stale following the failures of Silicon Valley Bank and Signature Bank. The latest read covers the period following recent financial turmoil and the fallout it has caused.

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