What to watch in the week ahead 5/22

Key takeaways

  • Next week, preliminary PMI (Purchase Manufacturing Index) data will give investors some insights into the potential economic slowdown. Other notable releases include FOMC minutes, GDP, personal spending data and the crucial PCE (Personal Consumption Expenditures) data, which tends to guide the Fed’s decision making.

  • China’s mismanagement of a recent COVID spread is likely to significantly impact GDP (Gross Domestic Product) growth, and may have ripple effects on other Asian economies – especially emerging markets. 

  • Yieldstreet launched another round of income notes and a second specialty finance fund, in line with the goal of providing what we believe to be the right private market exposure in times of volatile public markets. 

A big miss in retail sector earnings caused a major market drawdown this past Wednesday, with investors now adding recession fears to an already somber sentiment. In fixed income, the 10-year Treasury yield stabilized at approximately 2.9%, with the recent reprice potentially anticipating a recession.

PMIs, GDP, PCE

Next Tuesday, the release of May preliminary PMI data is likely to attract attention, as markets attempt to price the increasing odds of an upcoming recession. Durable goods orders and inventories – for which the release is scheduled for Wednesday and Friday, respectively – also tend to be good forward indicators of economic activity, with the caveat that these will be April’s readings and may not yet reflect the deteriorated economic outlook. 

GDP data – to be published on Thursday – will be the second estimate for Q1, based on more complete data. Investors will be looking for revisions to the first estimate, issued in April, which pointed to a 1.4% annualized decrease. 

April’s PCE will be released on Friday. At this point, there is no expectation that inflation may have slowed down in April, but going forward, as analysts start to factor in a potential recession, investors are likely to continue to monitor inflation closely in the expectation of a cooling down. 

Invest in Art Today

Lastly, FOMC minutes will be published on Wednesday. As Chair Powell’s press conference appeared to clarify the Fed’s strategy for taming inflation in the next two quarters, commentators will likely focus on the language in search for indications of what would happen in the event of a recession that may bring inflation down faster than expected. 

China 

China has been roiled in the past two months by harsh lockdowns in major cities, as the Omicron variant spread relentlessly fast amidst lower efficacy of domestic vaccines and a lack of herd immunity. While the city of Shanghai is just starting to emerge from two months of tight restrictions, contagion has been rampant in other densely populated provinces, such as Beijing and Tianjin. 

While the Chinese government may be able to contain the virus, the zero COVID strategy – which is heavily supported by the political leadership – is likely to slow down economic growth substantially. Major investment houses have downgraded their GDP projections for 2022, with Goldman Sachs expecting below-consensus real growth of 4% in 2022.1 

A slowdown in Chinese growth is manageable, but only if limited in time. China is a strong driver of growth in other emerging markets, especially in Asia, and an economic crisis there can have ripple effects on other developing economies in the region. 

Downside protection

Despite the risk-off environment and investor fears of adding exposure, Yieldstreet believes cash is not the solution while inflation remains near record levels. This past week, it launched a new Income Notes offering, designed to help provide regular income payments, while offering potential downside protection during periods of heightened uncertainty. It also reopened Specialty Finance Fund II for additional investment.

Source: Goldman Sachs

Published:

05/21/2022

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