Recession, what recession?


“Despite two consecutive quarters of negative growth, the US economy is clearly not in recession, even as investor fears have driven US Treasuries investment to levels not seen since November 2021.” (Photo credits: Adobe Stock – )

Free stand. “Weekly view” by César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management.


The strength of the US labor market surprised markets last week with half a million jobs created in July, a figure well above expectations. Most of the new jobs have been in the service sector, which has benefited from the recovery of the economy after the lifting of health restrictions.

The average hourly wage increased by 5.2% on an annual basis, while unemployment reached its lowest level since 1969, at 3.5%. In this context, we do not expect any change in the Federal Reserve’s monetary policy, as the markets now expect a rate hike of 75 basis points (bps) at the September meeting.

Despite two straight quarters of negative growth, the U.S. economy is clearly not in a recession, even as investor fears have driven U.S. Treasuries holdings to levels not seen since November 2021. The onset of recession appears inevitable, but it is not imminent in our view. In the meantime, the US economy should benefit from the Inflation Reduction Act passed by the Senate late Sunday evening. We will be watching closely the next figures for producer and consumer price inflation, due later this week.

Probably the last quarter of strong sales growth

Stock markets held up well last week to renewed fears about interest rates, thanks to the publication of rather reassuring results for the second quarter. Strong nominal growth translated into higher-than-expected sales and companies maintained margins by passing on higher costs to customers.

While 79% of S&P 500 companies announced an increase of +15% in their turnover and +10% in their earnings per share, these figures reached respectively +26% and +17% in Europe, thanks to to the weakness of the euro.

We are equity neutral. This is likely the last quarter of strong sales growth as consumers now prefer to seek the best prices or limit their purchases rather than accepting higher prices.

48% of containers passing through the Taiwan Strait now blocked

Reminiscent of the 1995 crisis, Chinese military exercises around the Taiwan Strait have intensified in response to the visit of Speaker of the US House of Representatives Nancy Pelosi. The Chinese army thus demonstrates that it is able to isolate the archipelago from the rest of the world.

With 48% of containers passing through the Taiwan Strait now blocked, supply constraints are likely to worsen if tensions persist. But it should be noted that China, heavily dependent on Taiwan for semiconductor chips, limited the blockade to 1% of its imports from the island.

Conversely, 42% of Taiwanese exports are destined for China, with 70% of the products concerned being related to technology. The current situation is likely to encourage companies to diversify their supply chains even further. In addition, world food prices plunged on an unprecedented scale since 2008 to reach their lowest level since January, in the wake of the Russian-Ukrainian agreement on the export of grain stocks.

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