5 Signs The Global Recession Is Here

As oil demand falls off a cliff and investors flock to the safety of US Treasuries, it's never been more apparent this cycle — we're on the cusp of recession.

Dear readers,

The economic cycle is an unrelenting force that dictates the ebb and flow of markets. Our job is to monitor risk, rates, commodities, and economic data extensively so we can keep you readily updated on our position in the cycle—well, after observing the Fed’s aggressive tightening campaign for 13 months, an equally aggressive economic contraction is materializing in the data. The long-awaited recession is at our doorstep.

Buckle up, let’s get into it.

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#1 — Crude oil production cuts in response to dwindling demand

On Sunday night, we received a surprise announcement from OPEC, the Organization of the Petroleum Exporting Countries, that daily production would be cut by 1.6 million barrels to 27.6 million barrels per day.

A supply schedule reduction of this size may look inflationary, but on further inspection, OPEC has reduced its output due to rapidly dwindling demand.

OPEC has been consistently below target production levels for over 12 months, despite the ongoing war which would otherwise be a boon for oil demand:

OPEC+ is now producing below its targets by a record 3.58 million barrels per day - about 3.5% of global demand - highlighting underlying tight supply in the oil market, even as recession fears drag oil prices lower. — Reuters, September 2022

Even as it cut its output for the first time last October by 2 million barrels per day, prices for crude still fell, painting the picture of just how rapidly demand for crude is falling:

Rather than stoking inflation fears, take this as a sign of the severe global slowdown we're entering.

Two consecutive several-million-barrel cuts to production, and crude oil’s price is still falling? That’s cause for concern, signaling global economic activity grinding to a halt.

#2 — Deteriorating economic survey data

Every ISM manufacturing subcomponent printed in contraction territory below 50—meaning that more respondents from the manufacturing sector are paying lower prices, hiring fewer workers, and placing and receiving fewer new orders. The importance of this survey as a derivative of US economic health can’t be understated, as manufacturing is upstream of all economic activity. As goes American manufacturing, so goes the economy: