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Saturday, July 23, 2022

Perfect recipe for a global recession?

The ECB had just hiked its rate by 50bp recently to contain its sky-high inflation.

Conversely, the EU PMI had just breached the 50 level which was in the contraction zone. PMI is usually a precursor of future GDP growth.  Please look at our previous explanation below.

CPI/PPI --> M1-M2 spread/3m-10y yield spread --> PMI --> GDP

Let's take a look at the US now.

The US will be hiking its rate by 75bp again in July.

The S&P US composite PMI had also entered a contractionary phase recently.

It is NEVER a good idea to raise interest rates when the economy is slowing down.  Therefore, the EU and US have created a perfect recipe for a global recession.

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