What to watch in the week ahead 7/17

Driving the news: Next week is slated to be a data heavy week, with more economic data reports on the way. Meanwhile global economic powerhouses continue to grapple with the aftermath of the economic slowdown, triggered by the war in Ukraine and soaring inflation. The US economy remains relatively stable compared to its counterparts in Europe and China, despite talks of a potential recession on the horizon. 

Glass globe of North and South America with graph printed documents
  • Consumer Price Index (CPI) inflation surprised on the upside (9.1% against an expected 8.8% year-over-year, a 40-year high) and core CPI beat expectations while slightly decreasing from May. Meanwhile, commodity prices were down materially, potentially anticipating a recession. 
  • A flurry of June housing data coming out Tuesday and Wednesday next week is likely to show a slowdown in the market, while July Preliminary Purchase Manufacturing Index (PMI) readings will be released on Friday.  
  • Last week, Yieldstreet launched an additional income note offering. It also launched a legal finance opportunity

JP Morgan, Morgan Stanley earnings surprise on the downside. “JPMorgan investment banking revenue was $1.4 billion, down 61% on the year-ago-quarter, largely driven by a 54% drop in fees across all products, while the bank also took markdowns on some loans in its investment banking businesses of approximately $250 million in revenue.”

Morgan Stanley reported a 55% fall in investment banking revenues to $1.1 billion with the bank’s advisory business taking a 10% hit. Equity and fixed income underwriting revenue also plunged 86% and 49%, respectively.

Recession fears seem to be materializing. Commodities have been falling, and it’s not just lower oil prices that are pointing to a recession. Here’s why a drop in copper prices may historically be a signal of economic slowdown.

…But equity prices may actually recover in a recession. According to Forbes, “the S&P 500 surprisingly rose an average of 1% during all recession periods since 1945. That’s because markets usually top out before the start of recessions and bottom out before their conclusion.”

Next week’s data dump. June housing data is going to be published at scattered intervals next week – building permits, housing starts on Tuesday, existing home sales on Wednesday. The housing market has started cooling down as interest rate hikes pushed mortgage rates up and affordability decreased due to a long price increase trajectory. However, the rental market continues to be crowded by new home buyers priced out of the market. 

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It’s risky here. It’s riskier elsewhere. Despite the growth slowdown and potential recession on the horizon, the United States economy remains relatively stable amidst a slowdown in global growth, and namely in other powerhouses such as Europe and China.

  • The short circuit caused by a war at its border simultaneously triggering inflation and a potential recession via higher energy prices is causing jitters in Europe. Eurozone debt yields are increasing, and Italy is leading the pack as it once again reckons with its structural economic weaknesses. The ECB is attempting to devise a mechanism to preserve monetary policy transmission to the periphery and avoid fragmentation – as it happened during the eurozone sovereign crisis – but with both legal and political constraints it remains to be seen what this mechanism will look like, and if it will work under increasing pressure from investors. The euro is currently trading at parity with the US dollar for the first time in twenty years, driven by monetary policy divergence, political and geopolitical risk. This, in turn, is likely to drive inflation further up in Europe via the import channel, as well as potentially making fossil fuels – which are priced in dollars – more expensive. 
  • China, on the other hand, is attempting to solve its current economic woes through monetary easing and fiscal stimulus – a tried and tested method that has however caused the current imbalances, including the housing market bubble that had investors on edge only a few months ago. The Chinese government maintains full control over the economic levers, and as President Xi Xinping is seeking a third mandate in the second half of 2022, it is likely to make strong attempts to stimulate growth. Using the same recipe that triggered last year’s crisis may, however, compound the existing problem – which is excessive leverage without necessarily helping with hitting the 5.5% stated growth target for 2022. 

Yieldstreet’s launches

Yieldstreet continues to offer private market investment opportunities amidst elevated market volatility. An additional income note offering was launched earlier in the week, with the potential to at least partially offset inflation while keeping a level of downside protection.

In addition, Yieldstreet has launched a legal finance offering with returns based on litigation outcomes – not correlated with broader economic factors – in order to potentially insulate from public market swings. The Fund provides investors with diversified exposure and access to legal finance with investments expected to vary by collateral type, legal risk, jurisdiction, and law firm.

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