A Technical Recession

Jul 28, 2022 11:26:40 AM / by Ashutosh Singh

  • A Technical Recession …

    A negative reading of GDP growth is termed as a “technical recession”. The data underneath reveals that personal consumption actually grew (by 1%). However, firms have started focusing on inventory and they are drawing down, and have lowered investment and hiring, and that leads to slow down.

    As Krishna Memani, CIO at Lafayette, pointed out, the demand curve hasn’t come down yet. That said, we are in stagflation. Don’t expect the Fed to let up. Citi’s Andrew Hollenhorst is projecting a 75bps increase in Sept and 4% by year-end. The street is looking at 3.25-3.5%.

  • It’s a Deal…

    Senators Schumer and Manchin along with House’s Nancy Pelosi agreed to a package that targets carbon emissions and curb health care costs. The package will be paid through higher taxes. This is a reversal (for the better) for President Biden.

    Sen. Manchin often consults with Larry Summers, former treasury secretary. The Democrats will have to pull in the two ends of their party - the left which will cry foul and the right (really centrists such as Sen Krysten Sinema. Ms. Sinema) has been a vocal opponent of tax increases, so it would be a hill to climb to get her vital support because they won't  gonna get any from the GOP.

    The end groups are also likely to oppose the bill with Wenonah Huater, Executive Director at Food & Water, said the deal promoted “false climate solutions”. The Sierra Club was more optimistic. Lori Lodes of Climate Power said, “the bill, if passed, would put the US on a path to lowering emissions in half by 2030. Congress needs to seize on this opening and pass the strongest clean energy and climate provisions possible ASAP.” Progressives may need to take this realism and lick their wounds.

  • A Breakthrough …

    Proteins are building blocks of the body and their structure and shape is crucial as it dictates how they do their job. Knowing a protein's shape, for example a Y-shaped antibody, tells scientists more about what this protein's role is, says FT.

    Deep Mind, a research outfit owned by Google, has used its AlphaFold algorithm (an AI/ML effort) to build the most complete and accurate database yet of more than 200 million known proteins. Existing methods could take months to map in a lab. Deep Mind’s results are available in a public database hosted by the European Bioinformatics Institute at the European Molecular Biology Lab (EMBL-EBI). “It’s opening up huge opportunities for AlphaFold to have impact on … sustainability, food insecurity, and neglected diseases,” said Demis Hassabis, CEO of DeepMind. “Almost every drug that has come to market over the past few years has been in part designed through knowledge of protein structures,” said Janet Thronton, senior scientist at EMBL-EBI. “Having access to all of these new structures, especially for … unusual organisms for which we did not have structural data, there is a real opportunity there not only to design new drugs … but to ensure those drugs don’t hit human proteins and cross react.”

    Deep Mind, importantly, excluded viruses from the database to prevent form being potentially weaponized by bad actors or bioterrorists, says Financial Times. Deep Mind, we should note, has been raking in losses for years and wouldn’t have survived without the largesse of Alphabet. Before we take out our pitchforks and go after big-tech, let’s take a moment to think about the research they finance - it’s not free!

Corporate Corner:

  • Solaredge (+9.68%) Sunnova (+6.39%), Enphase (+17.9%), Maxeon (+3.8%), First Solar (+4.3%)              and Sunrun (+6.44%)
  • Solar stocks are higher after the Manchin-Schumer deal came to light.
  • Spirit Airlines (+3.9%) agreed to be acquired by JetBlue for $33.5/sh in cash
  • Stanley Black & Decker (-12%) missed on top- and bottom-lines
  • Comcast (-5.7%) beat the estimates but there was no subscriber growth
  • S-W Airlines (-6.1%) topped the estimates but gave a cautious guidance
  • Harley-Davidson (+5%) topped the estimates and reaffirmed previous guidance
  • Meta (-4.2%) missed on estimates (earnings and revs)
  • Ford (+6.3%) beat the estimates and has inventory to sell!
  • Qualcomm (-3%) beat the estimates but lowered guidance.
  • Best Buy (-3.8%) cuts its full year sales and profits forecast
  • Etsy (+9%) had higher ad sales and that helped beat the estimates
  • Teladoc (-25%) reported wider losses


Data Check:

  • GDP Q2 (exp. +0.4%) fell -0.9%
  • Personal consumption rose by 1%
  • Private investment,residential and non-residential fell.
  • Exports rose
  • GDP Price index (exp. +8%) rose by 8.9%
  • PCE prices (exp. +6.1%) rose by 7.1%
  • Core-PCE (exp. +4.5%) rose by 4.4%
  • Initial jobless claims came in at 256k (exp. 253k)
  • German CPI rose by 0.9% (YOY +7.5%) higher than expected (+0.6%)


Trading Desk:

Equities: The stock futures are down - Dow -24, S&P -1, Nasdaq -27, and VIX -0.38 (22.86). The European shares are up mostly. FTSE -13bps, DAX +9bps, CAC +36bps, AEX +70bps, and STOXX +19bps. Asian shares ended mixed. HK -23bps, Nikkei +36bps, ASX +97bps, Mumbai +1.87% and Shanghai +21bps.

Commodities: The WTI +1.76%, Brent +1.5%, gold +1.4%, and copper +1.66%.

Currencies: The DXY index is flat, -51bps, yen up 1.3%, pound -21bps, and AUD -21bps. Bitcoin +83bps ($23k)

Bonds: The US10y -1.4bps (2.716%), gilts -3.6bps (1.923%), and bunds -7.6bps (0.864%)



Ashutosh Singh, CFA

Tags: sustainability, tech, carbon

Ashutosh Singh

Written by Ashutosh Singh

Ashu Singh is the head of Financial Products and Risk. Prior to YvesBlue, he was the Head of Alternatives Business for the Americas at MSCI for a decade. He specializes in quantitative investment strategies and risk management. He has a MS in financial engineering, MBA from the Wharton School, MS in Computer Science form the Courant School of Mathematical Sciences, NYU. He is a CFA Charterholder.