What the sellers are slowly realizing is not just that the Fed will be hawkish in September after the latest shocking inflation rate, but that the central bank will have to keep interest rates higher for longer. The British pound GBPUSD, -0.68% viewed by some as a proxy for financial market conditions, fell to its lowest level since 1985 against the U.S. dollar on Friday, moving below $1.14. In a new note to clients, Goldman Sachs chief markets economist Dominic Wilson and global markets strategist Vickie Chang ran the numbers on what it would mean if the Fed were to take a more hawkish path than the market is predicting . The results are not great. If the Fed has to hit the economy hard enough to get the unemployment rate to 5%, the S&P 500 SPX, -1.13% would have to fall 14% below 3,400, the yield on the five-year note TMUBMUSD05Y, 3.667% should increase by 91 basis points and the weighted dollar will increase by 4%. In the most severe scenario where the unemployment rate should hit 6%, the S&P 500 would fall 27%, below 2,900, the 5-year Treasury yield would rise 182 basis points and the dollar would rise 8%. (The last dot chart from the Fed itself shows the unemployment rate rising to 4.1% in 2024, and Goldman’s forecast is for the unemployment rate to reach 4% by the end of 2024.)
Goldman’s new forecasts aren’t great, but they’re in the realm of previous cuts.
This severe scenario implies a tightening of economic conditions comparable to the global financial crisis of 2008 and before the recession of the early 1980s. “If only a severe recession—and a sharper Fed response to meet it—will tame inflation, then it’s possible that the downside for both stocks and Treasuries could still be significant, even after the damage we’ve already seen,” he said. the generals. By the way, Goldman started the new year by predicting that the S&P 500 would close 2022 at 5,100. The market U.S. stock futures ES00, -1.28% NQ00, -1.32% were off to a torrid start. The dollar DXY, +0.31% has seen renewed strength. Crude oil futures CL.1, +0.42% were trading around $85. The hum Shares of FedEx FDX, -0.07% fell 20% in premarket trading after issuing a fiscal first-quarter warning and withdrawing guidance for the rest of the year. UPS rivals UPS, -3.12% and Deutsche Post DPW, -4.95% also fell. General Electric GE, -1.60% CFO Carolina Happe told an investor conference that she sees continued pressure on the supply chain impacting free cash flow in the third quarter. Uber UBER, +0.24% said it is responding to a cybersecurity incident and has contacted law enforcement. NCR NCR, -2.41% said it would split into two companies, rather than sell itself. Germany seized the assets of three Russian oil refineries, which represent 12% of the country’s oil refining capacity. The only data used is the University of Michigan consumer sentiment index, due at 10 AM. east, with the report’s inflation expectations under close scrutiny. The White House issued a flurry of reports on digital assets as it highlighted financial stability warnings from cryptocurrencies. The best of the web The Fed made its latest purchase of mortgage-backed securities. The lowest-earning category of American households is poorer than 14 European countries, including Slovenia. Apple AAPL, -1.89% is evolving into a different kind of company. The chart There’s good news and bad news with this chart compiled by Bank of America, which shows credit card usage soaring in both the U.S. and the U.K. The bad news, of course, is that Americans and Brits are feeling the need to borrow to support household spending as inflation soars. The good news, though, is that they’re still spending. Top indicators Here were the most active tickers as of 6am. Eastern. Another discussion of “what is a deadlock” in the NFL after a key interception is overturned. Men are paying six figures for the horrific surgery to get taller. The annual Ig Nobel was awarded for a study on knob turning. Need to Know starts early and is updated right up to the kick-off bell, but sign up here to get it delivered once to your email. The email version will be sent at approximately 7:30 am. east.
