Economist David Rosenberg’s perspective on the effect of Russia’s war in Ukraine on supply chains and commodity prices, and his outlook for the job market amid recessionary fears, are just as timely now as they were when he spoke to Opto Sessions back in April.
This week’s Opto Sessions revisits one of our most popular episodes to date, when we spoke to David Rosenberg, president and chief economist and strategist at economic consultancy firm Rosenberg Research. With oil prices remaining high — although fluctuating amid ongoing supply concerns — Rosenberg’s insights are still just as timely.
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Speaking to Opto back in April, he talked about the “tremendous inflationary supply shock” created by Covid-19 and the war in Ukraine.“These are recurring supply shocks at a time when we just came off the pandemic domestically,” he said.
“The major point is about how important Russia is, as a commodity producer, for the world. The fact [is] that we went into this crisis, with European dependence on Russian energy being as acute as it is,” he continued. “And, of course, I don't think most people understood how big and how important Ukraine is, especially when it comes to earth materials, and all of a sudden realise that neon gas is something that's very important [for the semiconductor industry], at a time when semiconductor supply chains have been totally disrupted because of the pandemic.”
“The major point is about how important Russia is, as a commodity producer, for the world” - David Rosenberg
Another timely issue at the moment is the state of the US job market, particularly as US Department of Labor figures were released on Wednesday this week. The data revealed the ‘great resignation’ of the pandemic era is still under way, despite growing fears of a recession.
“Once again, it comes down to this symbiotic relationship between the macro and the markets. I’m taking a look, for example, at the fact that the S&P 500 [human resources and] employment services sub-sector is down around 8%,” Rosenberg explained. Indeed, the sub-sector is now down 30.7% to date as of 6 July.
As the job market remains red hot, Rosenberg said the main question for investors is “how hot will [the employment market] be by the end of the year?”, and what this suggests about the likelihood of a recession. Pointing out that he expects unemployment to be at 5% by the end of 2022, he said “let’s just say almost for sure that we will be in a recession, not in 2023, but the second half of this year.”
“Once again, it comes down to this symbiotic relationship between the macro and the markets” - David Rosenberg
Indeed, his research model forecast an extremely high chance of recession back in April. “So, you have when you look at the domestic cyclical segments of the stock market, they’re telling you that we have a 50% chance of a recession, and the Fed is just getting going. So, I would say that our numbers are closer to 80% chance of recession.”
Looking ahead, Rosenberg took a cautious outlook. “The markets really priced more for a soft landing right now. That’s why we’re still very cautious. And you know, the only other thing that I would say is that we’re now into the mother of all tightening cycles, because when you actually count in what the futures market is discounting, and then the planned balance sheet reduction by the Fed, we're talking about a combined 450 basis points of de facto rate hikes this year. And then you trace through what that means for GDP growth. It's about a 2.5 to three percentage point policy drag on growth, that, by the way, accelerates to -5.5 percentage points in 2023,” he explains.
To hear more insights from David Rosenberg, listen to the full episode on Opto Sessions.
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