1. US banks brace for recession
The biggest US banks are bracing for a worsening economy next year as inflation threatens consumer demand.
JPMorgan Chase Chief Executive Jamie Dimon told CNBC that consumers and companies are in good shape, but said that may not last much longer as the economy slows down and inflation erodes consumer spending power.
“Those things might very well derail the economy and cause this mild to hard recession that people are worried about,” he said.
US consumers have $1.5 trillion in excess savings from pandemic stimulus programs, but it may run out some time in mid-2023, Dimon said. He also said the Federal Reserve may pause interest rate rises for 3-6 months after lifting them to 5%, but that this may “not be sufficient” to curb high inflation.
The US central bank last month raised rates by 75 basis points for the fourth consecutive time, taking them to 3.75-4%, but also signalled hopes to shift to smaller hikes as soon as its next meeting.
Inflation is impacting consumers’ savings, while US banks brace for recession. Image: Statista.
2. Global stock markets fall
Stock markets around the world have fallen this week amid concerns about economic stagnation next year.
European shares have been dragged down by weakness in healthcare and rate-sensitive tech stocks, with investors concerned about a global economic slowdown in the run-up to a raft of major central bank decisions.
The Europe-wide STOXX 600 index fell as optimism around China easing its COVID-19 restrictions was overshadowed by worries around interest rates and the likelihood of recession.
The European Central Bank, US Federal Reserve and Bank of England all meet next week to discuss monetary policy. The Reserve Bank of Australia offered a glimpse of decisions to come after raising rates to a 10-year high and sticking with its projection that more hikes are needed to cool inflation.
“We are again seeing global recession fears rise,” Equiti Capital’s Head Macro Economist Stuart Cole told Reuters. “With equities, specifically, there’s also a realization that a lot of corporations were far too optimistic and the cost of living crisis is really going to curtail aggregate consumption going forward.”