US: Recession time? – Nordea Markets
According to analysts at Nordea Markets, tightening financial conditions seen since early November are putting pressure on the US economy, with wider credit spreads and weaker equities being the main culprits, which now point to below 50 ISM Manufacturing readings three to four months from now.
“The ISM could continue to drop – and drop swiftly according to our most bearish models. The most forward-looking component of the ISM index, New Orders, dropped to 51.1 from 62.1 in November. It is admittedly a little hard to see any trough forthcoming right now. The ISM Manufacturing Index has not dropped >5 index points outside of recessions since January 1984.”
“In Europe, this week’s weak Swedish Manufacturing PMI now also suggests that the Euro-area PMI will drop below 50 within three to four months from now. It is probably still a bigger headache for the ECB to tackle weakening growth momentum than it is for the Fed.”
“If we are right that slowing central bank asset purchases (and soon aggregate central bank balance sheet contractions) are the principal reasons behind the recent weakening sentiment for risky assets, then concessions from the Fed, ECB or Bank of Japan are probably needed to really reverse the current market course.”