Also: Apple slump, Peltz v. Disney, and Chinese balloon.
Good morning, Peter Vanham here, filling in for Alan.
So, will we have a recession, or won’t we?
At least one Wall Street bank is confident that both Europe and the U.S. will avoid one, thanks to a motley crew of factors, including sweaters, small businesses, and Russian oil. That is the conclusion from my chat yesterday with Goldman’s senior energy economist, Daan Struyven.
Let’s start with Goldman’s most surprising take: even Europe won’t be having a recession, despite being plagued by persistent inflation and Russia’s ongoing war in Ukraine. That prediction is such an outlier, in fact, that no other major bank has yet followed it.
Whence the optimism? First, one of the warmest winters on record in Europe, combined with a surprising uptick in natural gas supply from the U.S. and Norway that made up for Russia’s shortfall, has made that gas prices tumbled almost to pre-war levels. On top of that, Struyven noted, “households and corporates have saved more energy than many economists had expected”. They turned the thermostat down and put on a sweater, and that may have been enough to avoid a winter recession. (You can take that literally, by the way: I’m writing this CEO Daily with a sweater on here in Switzerland.)
Moving on to the United States, Goldman believes the bearish layoff news of some of the Fortune 500 companies—particularly in tech and finance—is deceiving. “People are going back to the dentist, restaurant, and on a holiday,” Struyven pointed out. More broadly, leisure, hospitality, and state and local government, are seeing robust growth, alongside the health-care sector. With the exception of health care, he notes, “these are not Fortune 500 companies, so they are flying under the radar.” In other words, there is a “small-large” distinction, and “services-goods” distinction. On balance, the positive outlook in small businesses and the services sector wins out.
Finally, and perhaps most controversially, Struyven points to the calming effect Russian oil has on global prices. “Oil prices haven’t really moved much,” in the past few months, he said, “despite the fact that markets have become more optimistic” on the global growth outlook. In fact, prices have been falling. But why is that? “Because Russian oil supply is still holding up”, despite the Western embargo on Russian exports. From a growth and inflation perspective, this is good news. It keeps the global economic engine running. But from an embargo effectiveness standpoint, of course, it is a more eyebrow-raising outcome. It’s not fully surprising, either: India, China and Turkey all ramped up their purchases of Russian oil last year.
In sum, the U.S. and Europe are in a better place than many of us perceive, according to Goldman. And that in itself is the result of the weird post-pandemic economic cycle. On the one hand, the economy’s soft data, such as CEO and manufacturer sentiment, are depressed. On the other, the hard data—on employment, consumer spending, and increasingly core inflation and wage growth—are more positive.
There’s only one exception to Goldman’s bullishness and outlier predictions, by the way: Brexit Britain is still seen heading into a recession, due to its supply chain issues and labor market shortage.
More news below.
Peter Vanham
@petervanham
Peter.vanham@fortune.com
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Apple slump
Apple has posted its first quarterly revenue decline since before the pandemic, and Chinese supply chain disruptions were partly to blame (along with slow iPhone sales). It’s a familiar story across companies that do business in the country, from Starbucks to Estée Lauder. Fortune
Peltz v. Disney
Activist investor Nelson Peltz wants Disney’s board to boot out Michael Froman over “weak corporate governance.” Peltz’s Trian Fund Management wants Peltz himself, or his son Matthew, to replace Froman. Disney does not agree. Peltz Sr. is particularly incensed by Disney’s “over the top” executive compensation packages. His main backer is Marvel chair Isaac Perlmutter, who is Disney’s second-largest individual shareholder. Financial Times
Chinese balloon
The U.S. says China has been flying a reconnaissance balloon over its turf this week, including over sensitive military sites. The government has decided not to shoot it down, but was taking steps to shield sites. The episode comes just as Secretary of State Antony Blinken is due to visit Beijing. Wall Street Journal
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Cyber: From Threat Assessment to Growth Enabler How are leaders across industries building long-term value from integrating cyber across the business? Deloitte’s 2023 Global Future of Cyber Survey found that cyber initiatives made a significant contribution to at least one key business priority. Explore the findings here.
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