Wednesday: FOMC Policy Announcement.

Thursday: US Q2 Advance GDP.

Friday: US PCE.

We closed the last week with surprisingly awful US PMI data. The services index in particular fell much lower than expectations to 47 from the prior 52.7 a month earlier. That is a very fast deterioration and at a rate not seen since 2009 amid the global financial crisis. Generally, it’s the Manufacturing sector that falls faster as it’s more cyclical than the Services sector even if it accounts for just 20% of consumption. The Services sector though accounts for a huge 80%, which highlights even more how awfully the economy is performing.

The US economy may already be in recession and we may get a confirmation of that on Thursday when we will get the US Q2 Advance GDP report, which according to the Atlanta Fed GDPNow model, is likely to show another negative print. Technically, two consecutive quarters of negative GDP is considered a recession.

Having considered all of this, the market is likely to return to a risk off sentiment this week. There’s a common thought that bad news now is good news as the Fed is more likely to pause or even start cutting interest rates as the recession will bring inflation down. That absolutely makes sense and in recent recessions worked well, but the problem this time is that inflation is much higher and broader. I think the Fed will want to see clear evidence of inflation getting back to target before signalling a pause or the start of a cutting cycle. This, of course, will make the recession even worse and translate into more risk aversion in the market.