Our recession indicator, a 3-month TMO of seasonally adjusted non-farm payrolls, ticked up slightly to 0.52%. This reflects a slight improvement in monthly employment data but the indicator remains precariously close to the amber (high risk) warning level of 0.50%. The red warning level of 0.30% would signal extreme risk of recession.
During the week we discussed the high cost of uncertainty and how this impacts on business investment and consumer spending. Slowing growth in hours worked suggests that real GDP growth is likely to slow towards an annual rate of 1.0%. This would obviously be a drag on stock earnings.
The S&P 500 retreated from resistance at 3000 but a long tail on this week’s candle indicates buying support. Another test of 3000 is likely. Breach of 2800 is unlikely at present but would signal a reversal with a target of 2400.
21-Day Volatility remains high and the recent trough above 1.0% warns of elevated risk.
The plunge on 10-Year Treasury Yields, testing support at 1.5%, also warns of a risk-off environment.
On the global stage, low manufacturing purchasing managers index (PMI) warn that Europe is at risk of recession. DJ Euro Stoxx 600 is retracing to test support at 360/366. Breach would signal a primary down-trend.
The Footsie is similarly testing support at 7000.
Nymex Crude is heading for a test of support at $50/barrel. Trend Index peaks below zero warn of selling pressure. Breach of support would signal a primary down-trend — suggesting a contraction in global demand.
The outlook for the global economy is bearish and we have reduced our equity exposure for International Growth to 34% of portfolio value.