Banks have been raising loan loss provisions, they know what is coming down the pike: Rosenberg
U.S. equity market strength is deceiving experts into believing we’ve dodged a recession, one prominent economist is warning.
The S&P 500 was up roughly 15 per cent year to date as of Thursday, while a selloff continued throughout the world bond markets.
This overall strength in U.S. equities is painting a misleading picture as to where the global economy is heading, especially with the Chinese market indicating signs of a slowdown, David Rosenberg, president, chief economist and strategist at Rosenberg Research, told BNN Bloomberg in a TV interview on Thursday.
“People, analysts, economists, strategists have taken a stock market rally and fit in the narrative ‘there’s not going to be a recession.' Everybody is throwing in their recession call,” he said.
Rosenberg argued that the world economy is far from robust and is certainly not in the clear yet when it comes to avoiding an economic contraction.
“The recession has been delayed, it’s not derailed,” he warned.
On average, a recession takes two years to surface after the first interest rate hike from the U.S. Federal Reserve, he argued. The Fed’s first rate hike was in March of 2022, meaning a recession is not too far away, Rosenberg said.
“What’s going to happen is you’re going to have a huge default cycle. You’re already seeing it in auto loans, you’re seeing it in credit cards — you will see it across the gamut,” he warned.
Rosenberg pointed specifically to U.S. and Canadian banks’ moves to set aside more money for bad loans as a telling sign that financial institutions are preparing for credit losses ahead.
As for Canada in particular, he warned that the country’s fate will be closely tied to China’s economy.
“Although Canada is hitched to the U.S., commodity markets are really hitched to China, and the Chinese economy is reeling. It’s not getting better, and it’s probably on the precipice of heading into a recession,” he argued.
China accounts for half the demand for basic materials, which is a large component of Canadian corporate profits and a big share of the TSX Composite Index, he explained.
“We’re not getting out of this without a recession,” Rosenberg said.