Need to Know: Daily call is that recession is coming and S&P should be 13% lower

Investors are keeping a wary eye on oil after weekend attacks on Saudi Arabia crude facilities triggered the largest one-day gain for the commodity since 2008, and plenty of risk-off action all over.

The cautious tone looks here to stay as attention turns to the two-day Federal Reserve meeting starting on Tuesday.

Some are doubting we’ll even see that much anticipated interest-rate cut (see chart of the day).

Not that it matters, says our call of the day, from Binky Chadha, Deutsche Bank’s chief global strategist and head of asset allocation, in an interview with MarketWatch.

He warns a U.S. recession is on the doorstep, the Fed can’t help and the S&P 500  is ignoring all of the warning signs.

“We are cautious on stocks. We would argue you want to be defensively positioned [and] we would argue that the U.S. equity market has run way, way ahead of growth,” says Chadha.

The S&P, he notes, tends to be “very strongly correlated” with indicators of cyclical growth like the Institute for Supply Management survey (ISM), which fell into contraction territory last month. It suggests the index should be at 2,600, not at current levels just below 3,000, which appear to price in a “good solid rebound” for the ISM.

Elsewhere, he says annual U.S. jobs growth slowed from 2.5% in the middle of last year to 1.3% last month, marking the weakest expansion in 10 years, and nearing “stall-speed” for the economy.

“Every time payrolls growth has gone below 1%, the U.S. has ended up in recession. We would argue the U.S. economy is dangerously close to…tipping into recession,” he said, adding that the fate of the economy hinges on one thing – the trade war.

He said a market sell off would make President Trump more likely to relent on trade policy.

“I would argue that’s a necessary condition for growth to bottom and rebound and or the stock market to go up in a sustainable way,” he says.

If that doesn’t happen, Chadha says he will kiss goodbye his own “very bullish” year-end S&P forecast of 3,250.

The market

Oil  is reversing some of Monday’s historic gains, as another weak day builds for stocks, with Dow , S&P  and Nasdaq futures all down. Gold is lower, while the dollar is flat.

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European stocks are struggling, while got hit by Saudi-related tensions.


The economy

Industrial production and capacity utilization data, followed by a home builders’ index, are on tap, along with the start of the Fed’s two-day meeting ().

The chart

Here’s one question making the rounds: Could the Fed not cut interest rates this week? The , based on the Fed Funds futures, shows a 33% chance of no change, versus last week’s 8% possibility.

Another way to gauge the possibility is via eurodollar futures  , which settle at a three-month rate that tends to be in step with Fed’s target rate.

Here’s a one-month eurodollar chart and our chart the day. The higher those futures rise, the lower the implied Fed rate and it’s been going down — suggesting there are at least a few bets the central bank could surprise Wednesday:

The tweet The buzz

Shares of Corning  could take a hit after the materials group .

Early sales of Apple’s  new iPhones are looking

International regulators are  for its 737 Max jets approval process after two fatal crashes involving those planes.

Off again. WeWork’s parent is reportedly for the office rental company. Shares of big investor and Japan conglomerate SoftBank  took a hit.


At least one trade deal is ready to go — .

The quote Bill Gates, co-founder of Microsoft

“We’re not in some defensive posture where we’re mostly in cash or anything like that.” — That was Microsoft  co-founder Bill Gates that, at 63, he’s still keen on stocks.

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