Lots going on. Plenty of confusion.

Especially over that negative GDP print yesterday.

Some people calling for a recession next quarter. Others point out that it's more of an anomaly and the underlying economy is doing just fine...

Apple had it's third best quarter ever, beat analyst estimates, and announced $90 billion of share buybacks. Yet Apple shares are trading lower in pre-market.

And China's in deep crisis, but policymaker pledges have given Chinese markets a boost and sent some Chinese company shares higher by more than 10% today.
Lots to unpack...

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That GDP Headline


First thing we need to do is ignore the headline completely and dig into the details.

"Just tell me if it's good or bad!"

It's not that simple. The problem with any broad-based measurement like GDP is that the good stuff is hiding in the details.

Quick recap of the GDP calculation:

GDP = private consumption + gross private investment + government investment + government spending + (exports – imports)

And it's that last part that matters most: (Exports - Imports). Take a look at this chart comparing US imports and exports 👇

Usually, the two move roughly in lockstep even as the US maintains a large trade deficit with the world (by importing more than it exports). That trade deficit has ballooned since the pandemic with imports massively outpacing exports.

Why does that matter?

Because Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.

Imports, by definition, aren't produced within the country's borders. One countries' imports are another countries' GDP (the exporter).

So the yuge trade deficit was a big part of the picture 👇

There was plenty to be positive about in the report. Demand was strong and as Jason Furman notes private final domestic demand was up 3.7% in Q1.

  • Consumption: +2.7%
  • Business fixed investment: +9.2%
  • Residential investment: +2.1%

Yes, it's a negative GDP print, but the underlying economy is still strong. However, it's also a negative GDP print, so we shouldn't just dismiss it out of hand.

We need to frame the recession talk.

A recession is defined as:

"A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

Then there's a technical recession which is defined more simply as:

"Two consecutive quarters of negative GDP growth"

We're nowhere near it on the first measure, but just one quarter away on the second measure... 😜

I’ve seen this comment thrown around a lot on FinTwit (financial markets Twitter) recently... Most people would know that things go up and down, even Joe Public, right? If they didn’t, we’d just have an infinite up only business cycle and everyone would be exorbitantly wealthy - absolutely no rela…

And the data today was once again indicative of a strong economy in March.
Income & Consumption both came in above expectations.


The Employment Cost Index at 1.4% will be hot enough to keep the Fed sweating about a wage-price spiral embedding inflation in the economy. For now, the US economy is ticking along nicely.

Can Growth Be Sustained?

In a word, No.

Not at the same levels at least. Headwinds are growing.
Here's one perspective 👇

Amazon's earnings report was poor on a number of fronts, but sales projections for Q2 were especially disappointing. 👇

Amazon is projecting sales of $116 billion to $121 billion, an increase of 3% to 7%, including an estimated 2 percentage point headwind from unfavorable currency exchange rates. The company sees operating income ranging from a loss of $1 billion to a profit of $3 billion.
Previous Wall Street estimates had called for $125.4 billion in sales, and operating income of $6.8 billion.

This is no disaster, but it's not great either.

On a conference call with analysts, the company said it expects to have about $4 billion of temporarily higher costs related to inflation—in particular for fuel and transportation costs—and excess capacity that the company built during the pandemic.

Costs expected to increase while income's expected to decrease can never be good.

Apple had an exceptional quarter, beating revenue estimates, adding subscribers, announcing a $90 billion buyback program.

Astounding subscriber growth 👇



More specifically, China's lockdowns causing supply chain issues. CFO Luca Maestri warned sales could be hit by anything between $4 billion and $8 billion.

Clearly, this won't just affect Apple 👇


And beyond that, China's in a deep crisis comparable to the global financial crash according to this fund manager reported in the FT. 👇

Weijian Shan, whose group PAG manages more than $50bn, said his fund had diversified away from China and was being “extremely careful” about its portfolio in the country.
“We think the Chinese economy at this moment is in the worst shape in the past 30 years,” he said in a video of a meeting viewed by the Financial Times.
“The market sentiment towards Chinese stocks is also at the lowest point in the past 30 years. I also think popular discontent in China is at the highest point in the past 30 years.”

There's no doubt this is a seriously challenging time for China. They're ending the tech clampdown and making pledges, but will the confidence be there after such a hostile environment over the past two years...?

China to end tech clampdown as economy slows: sources
China is expected to stop its sweeping regulatory clampdown on the tech sector, giving internet platforms larger roles to help prop up the ailing economy, according to two sources briefed on the situation.

And to top off the growth headwinds, the strong wage (ECI) data released today practically ensures that the Fed has to keep pushing the hawkish rhetoric at next weeks' meeting.

Markets are pricing 250bps (2.5%) of rate hikes between now and the end of 2022...

Housing Is The Key To Slowing Inflation
Where housing leads, inflation follows...

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