I hope everyone has had a great weekend, with plenty of rest and relaxation. You're going to need it! The week ahead is absolutely stacked with earnings, economic events, and because we're past the monthly options expiration the market has the potential to really move.
The Big Picture
It's not often that a Fed hiking cycle has an actual soft landing, as is being projected. If, however, that is to be the case we should see leading economic indicators begin to flatten out and then perk up. Yet, instead, they are continuing to fall.
At the very least, Fed hiking slows economic activity as the cost of capital appreciates as its availability diminishes.
Once area that is appreciably visible is manufacturing new orders, a key leading economic indicator that has been in contraction for about a year.
We also see initial jobless claims trending higher, which is a sign that the labor market is beginning to slow.
Unemployment is also showing some signs of picking up, albeit from very subdued levels.
Goldman Sachs projects that inflation is at a turning point, and that the Fed's hiking cycle will end after the July 26th meeting, where they are projected to raise rates by 25 bps.
One reason for that is the economy is beginning to slow, and we can already see that priced in 10-year interest rates, where they are beginning to fall as future expectations about the economy and inflation become more reserved.
Some EMs are already moving towards a monetary easing cycle, and they may lead the developed markets this time around. Though we continue to expect that the Fed will not cut until mid-2024 unless something big enough breaks first.
You write: Whenever one sees upside (referring to skew), it's likely to manifest. You mean unlikely or actually likely?