New York: The biggest US banks are bracing for a worsening economy next year as inflation threatens consumer demand, according to executives Tuesday.
JPMorgan Chase & Co Chief Executive Jamie Dimon told CNBC that consumers and companies are in good shape, but noted that may not last much longer as the economy slows down and inflation erodes consumer spending power.
"Those things might very well derail the economy and cause this mild-to-hard recession that people are worried about," he said.
Consumers have $1.5 trillion in excess savings from pandemic stimulus programmes, but it may run out some time in mid-2023, he told CNBC. Dimon also said the Federal Reserve may pause for three to six months after raising benchmark interest rates to 5%, but that may "not be sufficient" to curb high inflation.
The U.S. central bank last month raised rates by 75 basis points during its fourth consecutive meeting to 3.75%-4%, but it also signaled hopes to shift to smaller hikes as soon at its next meeting.
JPMorgan Chase Chief Executive Jamie Dimon said in an interview with CNBC that he saw the chance for a "mild to hard recession" next year, while Goldman Sachs chief David Solomon offered a similar appraisal in a public appearance.
"The outlook is clearly darkening and that has many traders scaling down their risky bets," said Edward Moya at OANDA trading group.
All three major US indices finished decisively lower, with the S&P 500 losing 1.4 per cent.
Tuesday's losses added to the toll this week after major indices fell more than one per cent on Monday, over worries that a recent batch of solid US economic data will prolong the Federal Reserve's aggressive policies to counter inflation.
"The data looks increasingly like 2023 is going to include a recession," said Merk Investment's Nick Reece. "I don't think a recession has been... adequately priced into the markets."
Earlier, London, Frankfurt and Paris equity markets all closed lower after Asia mostly fell.
Recession worries also weighed on the oil market, where US benchmark West Texas Intermediate finished at $74.25 a barrel, down 3.5 per cent, in its lowest closing level of the year.
During the session, WTI slumped as low as $73.41 a barrel.
The drop has come despite signs that China at last appears to be retreating from its zero-tolerance policy to counter Covid-19.
But CMC Markets analyst Michael Hewson said traders were unsure how much of an economic boost Beijing's shift will translate to.
"Hopes of a demand boost from a China reopening have been tempered by the realization that while infection rates remain high any recovery will be muted at best," he said.
Moreover, the oil market has "lost" its tightness compared with earlier this year, said OANDA's Moya.
"It seems to have happened quickly but the crude demand outlook is getting crushed as we are in a slowdown basically across all the major economies," Moya added.
"Supplies seem plentiful over the near-term and that has everyone hesitating on what was one of the easiest trades of the year," he said.
Key figures around 2150 GMT
New York - Dow: DOWN 1.0 per cent at 33,596.34 (close)
New York - S&P 500: DOWN 1.4 per cent at 3,941.26 (close)
New York - Nasdaq: DOWN 2.0 per cent at 11,014.89 (close)
London - FTSE 100: DOWN 0.6 per cent at 7,521.39 (close)
Frankfurt - DAX: DOWN 0.7 per cent at 14,343.19 (close)
Paris - CAC 40: DOWN 0.1 per cent at 6,687.79 (close)
EURO STOXX 50: DOWN 0.4 per cent at 3,939.19 (close)
Tokyo - Nikkei 225: UP 0.2 per cent at 27,885.87 (close)
Hong Kong - Hang Seng Index: DOWN 0.4 per cent at 19,441.18 (close)
Shanghai - Composite: FLAT at 3,212.53 (close)
Euro/dollar: DOWN at $1.0470 from $1.0491 on Monday
Dollar/yen: UP at 137.04 yen from 136.75 yen
Pound/dollar: DOWN at $1.2133 from $1.2190
Euro/pound: UP at 86.26 pence from 86.07 pence
West Texas Intermediate: DOWN 3.5 per cent at $74.25 per barrel
Brent North Sea crude: DOWN 4.0 per cent at $79.35 per barrel