IMF: ‘Not in Crisis Yet, But Things Are Not Looking Good’ | 2023 ‘Darkest Hour’ for World Economy

Russia targets Ukrainian energy infrastructure

The International Monetary Fund predicts global growth will slow to 2.7% in 2023. “The worst is yet to come, and for many people 2023 will feel like a recession,” the report reads.

Its GDP estimate for this year remained steady at 3.2%, which was down from the 6% seen in 2021. Details below.

President Biden will attend a virtual meeting of the Group of Seven — Britain, Germany, France, Japan, Italy, Canada and the United States — today to discuss Russia’s latest aggressions and to renew support for Ukraine.

Russia unleashed a wave of attacks across Ukraine on Monday, killing at least 19 people and injuring more than 100 others, according to Ukrainian officials. Critical infrastructure was hit in several regions and in the capital Kyiv, where dozens of fires broke out, Ukraine’s emergency services said. So far, Ukraine’s Ministry of Infrastructure has logged more than 4,000 Russian strikes on its infrastructure during the conflict.

The Bank of England was again forced to step in and stop what it called “fire sale dynamics” in bond markets. Meanwhile, the Institute for Fiscal Studies estimated Chancellor Kwasi Kwarteng will need to find savings of at least £60 billion ($66 billion) to shore up confidence by the time he presents his fiscal plan on Oct. 31.

Target and Walmart said Monday that holiday sales will start this week, and Amazon is slated this week to hold another Prime Day-like event. Retail profits will decline as companies race to cut prices faster than their peers, Morgan Stanley analysts warned.

JPMorgan Chase CEO Jamie Dimon, head of the largest bank in the U.S., predicts a recession starting in as little as six months. More and perspective on his comments below.

The Fed’s vice chair Lael Brainard said yesterday that the central bank was taking note of rising global economic risks — but was focused on raising interest rates to tame rising prices.

The U.S.’ third largest rail union rejected a deal with major railroads, renewing the potential of a strike. More than half of the 23,000 members in one of the largest rail unions opposed the agreement, meaning the two parties will now enter negotiations in hopes of reaching a deal. Without a new deal, there could be a strike that significantly impacts the nation’s already struggling supply chains. But such a strike would not occur until at least Nov. 19, according to the union. Major railroads carry 30% of the nation’s freight and a strike could cause shortages and higher prices for essentials like food and gasoline. A strike could also force factories without parts to close and leave store shelves empty during the holiday shopping season.

In a Supreme Court (SCOTUS) hearing today, pork industry groups will challenge California’s Proposition 12 (Prop 12), which defines the minimum amount of space that mother pigs, baby cows, and laying hens must be given. More in Policy section.

Election Day 2022 is 28 days away. Election Day 2024 is 756 days away.

Equities today: Global stock markets were mostly lower overnight. U.S. Dow opened around 80 points lower. JPMorgan CEO Jamie Dimon, days before his bank reports quarterly earnings, told CNBC that he thinks the S&P 500 could fall another 20% depending on how the Federal Reserve continues to handle its battle against decades-high inflation. Investors are looking forward economic data this week, including inflation reports Wednesday and Thursday, as well as earnings reports. In Asia, Japan -2.64%. Hong Kong -2.23%. China +0.53%. India -1.17%. In Europe, at midday, London -1.27%. Paris -1.29%. Frankfurt -1.02%.

U.S. equities yesterday: The Nasdaq and S&P 500 opened the week with losses despite initially opening with modest gains. The Dow shifted between losses and gains, ending the session lower. The Dow was down 93.91 points, 0.32%, at 29,202.88. The Nasdaq fell 110.30 points, 1.04%, at 10,542.10. The S&P 500 declined 27.27 points, 0.75%, at 3,612.39.

Agriculture markets yesterday:

• Corn: December corn rose 15 cents to $6.98 1/4, the contract’s highest close since $7.01 1/2 on June 21, but down from an earlier a surge above $7.
• Soy complex: November soybeans rose 7 cents to $13.74, after rising earlier to $13.98 3/4, the contract’s highest intraday price since Sept. 29. December soymeal rose $5 to $405.70, also the highest since Sept. 29. December soyoil fell 54 points to 66.06 points.
• Wheat: December SRW wheat soared 57 3/4 cents to $9.38, the contract’s highest closing price since June 29. December HRW wheat rallied 55 1/2 cents to $10.24 1/4, the highest close since June 22. December spring wheat rose 46 1/4 cents to $10/14 1/4.
• Cotton: December cotton rose the daily trading limit of 400 points, to 88.23, the contract’s highest close since Oct. 4.
• Cattle: December live cattle fell $1.05 to $147.00, the contract’s lowest closing price since Sept. 28. November feeder cattle plunged $2.75 to $172.875, the contract’s lowest close since May 31.
• Hogs: October lean hogs rose 80 cents to $93.75, while December hogs rose $2.45 to $79.60, the contract’s highest closing price since Sept. 23.
  

Ag markets today: Corn, soybeans and wheat pulled back from Monday’s gains amid corrective selling and weakness in the crude oil market. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were 1 to 3 cents lower and wheat futures were 14 to 18 cents lower. Front-month crude oil futures were around $2.25 lower and the U.S. dollar index was nearly 250 points lower.

Technical viewpoints from Jim Wyckoff:

On tap today:

• International Monetary Fund releases its World Economic Outlook at 9 a.m. ET. See next item for details.
• USDA Grain Export Inspections report, 11 a.m. ET.
• Federal Reserve speakers: Philadelphia’s Patrick Harker on regional economies at 11:30 a.m. ET, and Cleveland’s Loretta Mester at the Economic Club of New York at 12 p.m. ET.
• USDA Crop Progress report, 4:00 p.m. ET.
• Treasury Secretary Janet Yellen will host Ukraine finance minister Sergii Marchenko at the Treasury Department today.

IMF forecasts a slowdown in global growth from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023. The global slowdown in 2022 is as projected in the July 2022 World Economic Outlook (WEO) update, while the forecast for 2023 is lower than projected by 0.2 percentage point. In the revised forecasts, 93% of countries received downgrades to their growth outlook. Link to report.

Aside from the global financial crisis and the peak of the Covid-19 pandemic, this is “the weakest growth profile since 2001,” the IMF said in its WEO published Tuesday morning. “The worst is yet to come, and for many people 2023 will feel like a recession,” the report said, echoing warnings from the United Nations, the World Bank and many global CEOs. More than a third of the global economy will see two consecutive quarters of negative growth, while the three largest economies — the United States, the European Union and China — will continue to slow, the report said.

The IMF laid noted three major events currently hindering growth: Russia’s invasion of Ukraine, the cost-of-living crisis and China’s economic slowdown. Together, they create a “volatile” period economically, geopolitically and ecologically.

The IMF anticipates global inflation will peak in late 2022, increasing from 4.7% in 2021 to 8.8%, and that it will “remain elevated for longer than previously expected.” Global inflation will likely decrease to 6.5% in 2023 and to 4.1% by 2024, according to the IMF forecast. The agency noted the tightening of monetary policy across the world to combat inflation and the “powerful appreciation” of the U.S. dollar against other currencies.

The IMF also highlighted that the risk of monetary, fiscal, or financial policy “miscalibration” had “risen sharply,” while the world economy “remains historically fragile” and financial markets are “showing signs of stress.”

In an interview with the Financial Times (link), Pierre Olivier Gourinchas, the IMF’s chief economist, said there was as much as a 15% chance global growth could fall below 1% eventually. This level would likely meet the threshold of a recession and would be “very, very painful for a lot of people.”

“We are not in a crisis yet, but things are really not looking good,” he said, adding that 2023 would be the “darkest hour” for the global economy.

Winter 2022 will be challenging, but 2023 ‘will likely be worse’. The energy crisis is also weighing heavily on the world’s economies, particularly in Europe, and it “is not a transitory shock,” according to the report. “The geopolitical re-alignment of energy supplies in the wake of Russia’s war against Ukraine is broad and permanent,” the report added. “Winter 2022 will be challenging for Europe, but winter 2023 will likely be worse,” the IMF said.

China’s economy was forecast to grow only 4.4% this year, well below the Beijing government’s 5.5% growth target. The IMF expects this annual growth rate to improve only to 4.6% over the next five years.

The U.S. economy is expected to stagnate over the four quarters of 2022 and then maintain a sluggish 1% growth rate in 2023.

BOE acts again, warns of ‘dysfunction’ in market. The Bank of England (BOE) expanded its bond market rescue program, announcing it would buy up to 5 billion pounds ($5.54 billion) in index-linked gilts (bonds) per day, just a day after it raised the daily total amount of bonds it would buy to 10 billion pounds. The BOE said the moves were in part a response to a “further significant repricing of U.K. gov’t debt” that has unfolded. “Dysfunction in this market, and the prospective of self-reinforcing ‘fire sale’ dynamics pose a material risk to U.K. financial stability,” the BOE stated.

U.S. recession watch:

• Walmart is laying off nearly 1,500 workers at its Atlanta-area fulfillment center.
• Retailers have been overwhelmed with excess inventory this year as shoppers have shifted their spending habits. Target said Monday that it was beginning its Black Friday sale, which will include half-priced electronics and toys. Analysts from Morgan Stanley are predicting that to avoid being saddled with too much merchandise they can’t unload, retailers could get stuck in a race to the bottom on prices that will eat into their profits.
• JPMorgan Chase CEO Jamie Dimon cautioned that the U.S. is likely to “tip into recession in six-to-nine months” due to what he calls a “very, very serious” combination of headwinds, including inflation, high interest rates and the Russian war in Ukraine. “These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon told CNBC. Dimon criticized the Federal Reserve, saying it “waited too long and did too little” in hiking interest rates in hopes of taming runaway levels of inflation not seen in four decades. The JPMorgan chief said that the central bank was “clearly catching up.” Dimon said he was unsure as to how long a recession would last. “It can go from very mild to quite hard and a lot will be reliant on what happens with this war,” he said.
  

Staffing shortages still plague almost 90% of U.S. hotels, particularly in the housekeeping department. The labor issues effectively drive up national average hotel rates as properties are forced to make fewer rooms available to customers, fueling demand.

Billionaire Warren Buffett is sitting on a small gold mine with his Omaha, Nebraska home as the Cornhusker State’s biggest city is poised to become the third best performing real estate market in the country over the next year. The nearby town of Lincoln, home to the University of Nebraska, could perform even better as the top hottest market during the same period. Forbes lays out the other locales expecting a real estate windfall (link).

Market perspectives:

• Outside markets: The U.S. dollar index was weaker with the euro and British pound showing strength. Yield on the 10-year U.S. Treasury note was firmer, trading around 3.91%. Crude is under pressure, with U.S. crude under $89.35 per barrel and Brent under $94.50 per barrel. Gold and silver futures are narrowly mixed, with gold firmer around $1,677 per troy ounce and silver weaker around $19.40 per troy ounce.

• U.S. Treasury yields climbed on Tuesday, with the 10-year note briefly hitting 4% again and the two-year yield rising above 4.35% at one point in early trading, according to Tradeweb.

• Rail union rejection renews strike risk. A majority of the unionized railroad workers belonging to the Brotherhood of Maintenance of Way Employees (BMWED) voted to reject a tentative labor agreement brokered in part last month by President Joe Biden, the first dismissal by members of a dozen labor groups that must accept the deal or risk a strike. Four other unions have approved the pact, while seven more are scheduled to vote through mid-November. The vote results in a “status quo” period in which no strike can take place while the union resumes bargaining with freight railroads, according to the statement. No “self-help” may occur until after Nov. 19 at the earliest, it said. (The two largest unions that represent conductors and engineers — making up about half the total rail workforce — aren’t set to conclude voting until November 17.) “Railroaders do not feel valued. They resent the fact that management holds no regard for their quality of life, illustrated by their stubborn reluctance to provide a higher quantity of paid time off, especially for sickness,” said BMWED president Tony Cardwell in a statement (link). Bottom line: The rejection does not “present risk of an immediate service disruption” because both sides have agreed to maintain the status quo as they discuss next steps, the National Carriers’ Conference Committee said in a statement. The group that represents the freight companies in bargaining, the National Carriers’ Conference Committee, said they were “disappointed,” but noted that for now nothing changes. “The failed ratification does not present risk of an immediate service disruption,” it said (link). If the unions vote down the deal, it could be left to a lame-duck Congress to step in. That would give Democrats more cover to force workers into a deal, Bascome Majors, a railroad analyst at Susquehanna, wrote in a recent note (link).

• Ag trade: Taiwan tendered to buy up to 65,000 MT of corn from the U.S., Brazil, Argentina or South Africa. Japan is seeking 94,140 MT of milling wheat in its weekly tender.

• NWS weather: There is a Marginal Risk of excessive rainfall over parts of Southeastern California through Thursday morning... ...There is a Marginal Risk of excessive rainfall over parts of the Central Gulf Coast to Southeast from Wednesday into Thursday morning... ...There are Freeze Warnings and Frost Advisories over parts of the Northeast.

Items in Pro Farmer’s First Thing Today include:

• Corrective pullback overnight
• U.N. calls for faster inspections of Ukrainian grain shipments (details next section)
• Aussie wheat crop quality at risk due to heavy rains
• China continues to sell soybeans from state reserves
• New yearly high for cash cattle possible this week
• Cash hog index firms

— Summary: Volodymyr Zelenskyy, Ukraine’s president, is expected to ask the G7, a group of rich democracies, to supply it with more weapons at an emergency meeting called in response to a barrage of Russian missiles targeting Ukrainian cities. President Joe Biden has already promised more support for Ukraine, including air-defense systems. Meanwhile Belarus ordered the deployment of troops alongside Russian forces on its border with Ukraine. Kyiv is now set to receive air defense systems from Germany in the coming days, the German Defense Ministry said, while France has also vowed to send weapons to support Ukraine’s military effort.

• Zelenskyy gave an address to his nation Monday night where he said 84 missiles hit Ukrainian cities and he reassured Ukrainians “that the country was working to get modern air-defense systems and strengthen its forces.”
• Putin’s retaliatory moves even seemed to cross a line for China and India, both of whom urged de-escalation. “India is deeply concerned at the escalation of the conflict in Ukraine, including targeting of infrastructure and deaths of civilians,” said Arindam Bagchi, the spokesperson for India’s Ministry of External Affairs.
  
• Official: Russia may opt to end grain export quota system. Russian Deputy Prime Minister Viktoria Ambramchenko, according to Interfax, said the country may opt to end its grain export quota system, citing large crop expectations. “The harvest is big, so, in principle, probably, yes, there are no prerequisites to impose any quantitative restrictions at the moment,” she said, according to a Reuters recap of the Interfax item. Russian typically puts export quotas in place in the latter portion of the July/June marketing year for grain to make sure there is enough domestic grain supply. Russia usually sets grain export quotas from mid-February and until the end of June based on supplies. Russia expects this year’s grain crop to be a record 150 MMT, including 100 MMT of wheat.

• United Nations calls for faster inspections of Ukrainian grain shipments. On Monday, 97 ships loaded with around 2.1 MMT of Ukrainian grain were waiting for inspection at Istanbul, prompting the U.N. official overseeing the process to call on Russia and other parties to end “full-blown” inspections of outgoing vessels. Amir Abdulla, U.N. Coordinator for the Black Sea Grain Initiative, said he had proposed quicker, targeted checks of ships arriving from Ukrainian ports. “There will need to be a change and I hope we can negotiate a better way of doing (inspections)” as part of the talks to extend the grain export deal beyond its Nov. 19 deadline, Abdulla told Reuters.

— ERP payments go over $7 billion. Payments under the Emergency Relief Program (ERP) moved above $7 billion as of Oct. 9 at $7.03 billion. Non-specialty crop payments are at $6.04 billion with $991.3 million in specialty crop payments.

— The U.S. Supreme court today hears the pork industry’s case against California’s Proposition 12. We have written about this several times. Here are some key points:

• The case: In a SCOTUS hearing today (Oct. 11), pork industry lobby groups will challenge California’s Proposition 12 (Prop 12), which defines the minimum amount of space that mother pigs, baby cows, and laying hens must be given.
• According to Prop 12, backed by 63% voters in 2018, a seller shall not “knowingly cause any covered animal to be confined in a cruel manner.” In the case of pigs, this means each mother and offspring must have at least 24 square feet of living space.
• The challengers: National Pork Producers Council (NPPC) and the American Farm Bureau Federation (AFBF).
• Key issue: Whether Prop 12 violates the constitution’s “dormant commerce clause” by imposing an unreasonable burden on interstate trade. Several states ban gestation crates within their borders, but California takes the ban a step further — targeting the sale of products derived from animals born in gestation crates affects not just domestic production, but the entire pork industry. It will “transform the pork industry nationwide,” NPPC and AFBF argue. Given that almost all of the pork sold in the state is produced outside, Prop 12’s “practical effects are almost entirely extraterritorial.”
• The plaintiffs will argue that allowing the California law to stand risks allowing other states to set standards that influence food production standards nationwide.
• Prop 12 proponents say that states are well within their rights to mandate laws on food standards, public health, and animal welfare.

— Summary:

• Global Covid-19 cases at 621,991,645 with 6,558,869 deaths.
• U.S. case count is at 96,721,113 with 1,062,681 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 624,198,981 doses administered, 268,373,101 have received at least one vaccine, or 81.45% of the U.S. population.

— The nasal version of AstraZeneca’s Covid vaccine fails in a clinical trial. The formulation generated antibody responses in only a minority of trial participants. The results dampen hopes for a nasal vaccine, which would be easier to administer than injections.

— Ohio debate. Democratic Rep. Tim Ryan and Republican JD Vance sparred over each other’s fitness for the Senate, Donald Trump, and China in a contentious first debate. The two are facing off in an unexpectedly competitive race that may help determine which party controls the chamber.

— Speed trap coming? The National Transportation Safety Board recommended a new vehicle system that could stop drivers from speeding. The technology essentially recognizes speed limits and either issues visual or audible alerts when a driver is speeding, or prevents vehicles from going above those limits. New York City has become the first city in the U.S. to test the speed-limiting technology in 50 of its fleet vehicles.

— Gigantic pumpkin. Travis Gienger, a Minnesotan horticulture teacher, took home gold—and broke the U.S. record — for growing an enormous pumpkin at the 49th World Championship Pumpkin Weigh-Off in California on Monday. His gigantic gourd weighed a total of 2,560 pounds. Gienger, who had to bring his prize-winning pumpkin from Minnesota to California to compete in the tournament, said it was a difficult journey. “You think driving in a snowstorm is bad? Try driving one of these things,” he told the Associated Press (link).

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS |