Market Sentiment Tracker - Living on the Recessionary Edge

China’s economic pulse as captured in the Market Sentiment Tracker for the end of November 2023, reflects a complex interplay between domestic headwinds and growth:

The manufacturing sector is under pressure, with the PMI just below the growth threshold at 49.5, and a notable decline in foreign orders and exports indicating global trade challenges, possibly amplified by US-China tensions in the tech sector.
Yet, the economy exhibits resilience, with a bounce-back in new home sales and solid year-on-year growth in retail sales and industrial production.
Residential electricity consumption data point to a significant rise over the past decade, hinting at increased domestic demand and urbanization.
The outlook is cautiously optimistic, acknowledging China’s relative strength in the global arena, though a full return to pre-pandemic vibrancy remains a work in progress

The Market Sentiment Tracker for Europe as of November 30th, 2023, sketches a picture of an economy grappling with numerous challenges yet showing faint signs of stabilization.

Recessionary Pressures:

The postponement of budget talks in Germany, Europe’s largest economy, signals potential fiscal policy uncertainty.
The Eurozone’s anemic GDP growth of only 0.1% year-over-year (YOY) in the third quarter indicates a significant slowdown in economic momentum.
Suspension of Germany’s “debt brake” suggests fiscal measures are being loosened to potentially counteract economic stagnation, though it raises long-term sustainability concerns.
Rising loan defaults in the Eurozone point to increasing financial stress among borrowers, a worrying sign for banks and the broader economy.

Stabilizing Factors:

Despite the pervasive gloom, Germany’s PMI has risen to a four-month high of 47.1, suggesting a slight improvement in manufacturing, although it remains below the expansionary threshold of 50.
The UK economy’s stability, albeit at a low level according to the OECD, provides some relief against the backdrop of European economic troubles.
Signs that the Eurozone economy might be bottoming out hint at a possible end to the current downturn, albeit without clear indications of a swift rebound.

Outlook: The sentiment tracker concludes with a sobering outlook, suggesting that the Eurozone is facing a ‘polycrisis’ with expectations of exacerbating challenges in the near term. This implies that while there may be pockets of resilience, systemic risks — particularly from an energy crisis and fiscal instability — loom large, and could potentially derail the fragile signs of recovery. As an economic expert, this analysis would prompt a cautious approach to investment and policy formulation, advocating for measures that shore up economic resilience while preparing for a potentially turbulent period ahead.

The Market Sentiment Tracker for the U.S. and World as of November 30th, 2023, offers a mixed perspective on the American economy, highlighting both robust growth and signals of potential downturn:

Recession Indicators:

The U.S. ISM Index is below the neutral 50 mark for the 11th consecutive month, indicating persistent contraction in the manufacturing sector.
Tightened lending standards may reflect growing caution among financial institutions, potentially leading to a credit crunch.
The yield curve inversion, with the 10-year minus 2-year Treasury yield spread negative since July 2022, is traditionally a precursor to a recession, suggesting a possible downturn within the next year.
Deutsche Bank forecasts a mild recession hitting the U.S. in the first half of 2024.

Growth Indicators:

Despite these cautionary signals, the U.S. economy grew a solid 5.2% in Q3, and unemployment rates remain low, showcasing current economic resilience.
The OECD predicts a global economic recovery by 2024, which could bolster U.S. economic prospects.

Outlook: The sentiment tracker underscores a resilient U.S. economy amidst challenging indicators. While growth is evident, the risk of an upcoming recession cannot be overlooked. Economic actors might consider preparing for a potential downturn while capitalizing on current strengths, as the tracker suggests a critical period ahead where the U.S. may face both domestic and global economic headwinds.