DBG-BlackRock and Oriental Huili issue a warning: US recession?

The investment heads of the world's two largest asset managers have warned that...The risk of a US recession is risingAlthough U.S. government officials and a growing number of investors believe that the Federal Reserve's rate hike will not cause significant damage to the economy.

Top fund managers at BlackRock and Orient Central said the US economy was resilient despite the Federal Reserve's aggressive monetary tightening.But "cracks" are emerging, especially in the labor market。

“The probability of us falling into a recession is very high"The question is how deep and how long... we care more about what's going on in the US than what people agree on," said Vincent Mortier, chief investment officer at Orient Wire, which manages $2.10 trillion in assets.

Mortier added,He expects the U.S. economy to contract by the end of this year or early next year。

Rick Rieder, chief investment officer for BlackRock's global fixed income business, which manages $9.40 trillion in assets, said:In recent weeks, he has become more pessimistic about the state of the U.S. economyAlthough he believes the country will avoid a severe recession, he said,The economic slowdown has already begun.He said:

"We've always been enthusiastic about the economy, but now, ironically, when I think people have'written off 'the recession... I actually think we're seeing some clear signs of a slowdown. I don't think the recession is going to go away."

ThisBoth asset managers are currently "overweight" US Treasuries，ThisThis means they are holding positions higher than the benchmark becauseThey believe that the Federal Reserve may have finished raising interest rates, and that U.S. Treasuries will perform well in times of economic weaknessIn addition,Both are expecting the dollar to decline。

Their warnings come as broader markets anticipate a "soft landing", in which the Federal Reserve seeks to reduce inflation without tipping the economy into recession, with US Treasury secretary Janet Yellen saying at the weekend she was increasingly confident of the possibility.

Goldman Sachs earlier this month also lowered the likelihood of a US recession starting in the next 12 months. A Bank of America survey of global fund managers released on Tuesday found that about three-quarters of respondents expected a soft landing or no recession at all, up from 68 per cent in June.

DBG ForexObserved that investors in the futures market reflected more optimistic expectations. Earlier this year,Traders are betting that the Federal Reserve will slash interest rates sharply in 2023The Federal Reserve is expected to be forced to ease monetary policy in the face of a recession.ThisThe expected rate cuts have been largely postponed until the middle of next year.

Both Mortier and Rieder pointed out,The recent tightening of the labor market is evidence of an economic slowdownThe unemployment rate rose to 3.8% in August, higher than economists' expectations and higher than the 3.5% unemployment rate in July. Despite the higher-than-expected number of new jobs, the total number of jobs in the first two months was revised downwardRieder said:

“ThisFor the first time, there is some noticeable weakness in the workforce. With further rate hikes becoming less and less likely, relatively high Treasury yields look attractive. Now the Fed is very close, if not completely over hiking... I think it would feel good to have a little more interest rate exposure. "

According to Mortier,The weak job market will weaken consumer demand, putting pressure on corporate profit margins as companies lower prices to compete for market share. "The American consumer is exhausted," he said.

Separately, Mr. Mortier believes that balance sheets will become tighter as companies deplete their cash reserves and need to refinance at higher rates, adding that "a wall of refinancing is coming".

Regarding government debt, Mortier pointed out that,The high level of US government debt has limited the ability of US authorities to increase their support for the economy。Oriental Huili is shorting the US dollarHowever, Mortier admitted that given that the dollar is a safe-haven asset, it could benefit during market volatility.ThisIt's a "tricky" bet.