Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, USA, December 7, 2023.

Brendan Mcdermid | Reuters

Markets are confused about the likelihood of a U.S. recession and “someone was wrong,” said hedge fund manager David Neuhauser.

Livermore Partners’ CIO told CNBC on Monday that many investors are hoping for a “Goldilocks” scenario in which the economy doesn’t grow too fast or contract too much.

“The outlook, of course, was that the Fed would try to cut rates because they had a soft landing coming up. And on the surface it looks like that is the case,” he told Squawk Box Europe.

Recent employment data and inflation figures have raised hopes that a recession in the US can be avoided. Nonfarm payrolls beat expectations in November and inflation numbers for October also topped estimates, with consumer prices flat from the previous month and rising 3.2% a year earlier.

“But at the same time you see a lot of cracks beneath the surface,” Neuhauser added.

He identified weakness in US consumption and the global economy – particularly China’s – as well as the fact that inflation numbers remain stubbornly high in a number of countries.

“It seems like the US is the best place to be, and I think that’s true today. But I think so.” [the] Forward path – will we see things fall off a cliff? Or are we going to slide down, so to speak, and corporate profits will be protected from the storm?,” he said.

“That’s the thing, I guess. People don’t really have a good understanding of today, but they believe that’s what’s going to happen – that’s the narrative.”

According to Neuhauser, the oil and gas markets tell “a completely different story” when it comes to the economic outlook.

“If you look at oil … and you look at the gold market, it tells you there’s a recession coming,” he said. “But if you read analysts’ statements, economists say the soft landing is near for the U.S. economy. That’s actually the 10-year bond.” [Treasury yield] tells you.”

Brent crude futures due in February were trading at about $75.67 a barrel early Monday, down more than 20% from their peak of about $97 a barrel in September.

Spot gold prices have surged since hitting lows in early October of about $1,810 an ounce. The commodity traded at around $1,991 an ounce on Monday, down from last week’s record high of over $2,100 an ounce.

Both falling oil prices and rising gold prices point to growing fears of recession. At the same time, increased expectations of a soft landing (following the strong jobs data) led to a rise in 10-year Treasury yields on Friday. The 10-year yield was around 4.254% early Monday.

“Someone is wrong here, that’s what I’m trying to tell you,” Neushuaser added. “It’s hard to describe who has it [wrong] still. So I’m really waiting and seeing to see which path is the right one.”

Source : www.cnbc.com

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