Economic Early Warning Report for Friday, 17 October 2025

Good afternoon. Here’s your Economic Early Warning Report for Friday, 17 October 2025.

Top of Mind: BofA’s October GFM snapshot

Bank of America published their Global Fund Manager (GFM) survey for October, which is the most bullish in eight months, as recession fears continue to recede.

• RECESSION: 69% of respondents say recession is unlikely in the next 12 months, with 54% expecting a soft landing (slowed growth), 33% no landing (continued growth), and just 8% expect a hard landing (recession).
• AI BUBBLE: A record-high 54% of respondents now say artificial intelligence stocks are a bubble.
• GOLD: “Long Gold” becomes the most crowded trade, a position held by 43% of respondents. The weighted average of gold allocation is 4.2% among investors who are allocated to gold.

SELECTED COMMENTARY

• BANK OF AMERICA:
  • “The US government shutdown is still ongoing, but we will get September CPI next week. We expect both headline and core inflation to print at 0.3% mom, with core at 3.1% yoy. With tariff pass through most likely still in the pipeline, and with resilient consumer spending and wage growth, we think a Fed over focusing on payrolls risks over-easing. At the same time, credit events affecting US regional banks are giving rise to concerns on whether credit spreads could be mispriced. But events so far do not appear systemic. Back to tariffs, the recent escalation with China and US tariff threats of 100% bring further risks to the outlook. In our view, the most likely scenario is that the escalation proves largely transitory, with the Trump administration increasing pressure ahead of the scheduled meeting with President Xi. However, trade-related uncertainty is on the rise again, underscoring our view that going back to normal will remain elusive. ” [Global Economic Weekly, 17 OCT]
  • “Scores on the Doors: gold 58.2%, stocks 19.0%, bitcoin 18.6% … commods 2.4%, US$ -8.9%, oil -18.8% YTD. Zeitgeist: ‘K-shaped economy goes pear-shaped if asset prices drop and hit rich.’” [Flow Show, 16 OCT]
  • “We have long argued that Kevin Hassett is the front-runner for Fed Chair… We think Hassett is the most likely to push to cut rates well below 3%, as Trump has called for. In our view, Rick Rieder of BlackRock is running a close second right now. We think the President will view his strong private sector track record favorably.” [Morning Market, 16 OCT]
  • “After a three-month surge in consumer spending from June to August, we wouldn’t put too much weight on a September slowdown.We think the projected weakness is largely a function of [season factors], rather than fundamentals.” [Retail Sales, 16 OCT]
• CITADEL (HEDGE FUND):
  • “While near-term headline risks may continue to fuel volatility, the underlying equity market primary trend remains constructive. Strengthening corporate fundamentals should underpin the next leg higher as we enter a historically strong November.” [Memo, 14 OCT]
• CITIBANK:
  • “Thursday’s sell-off, led by US regional bank credit concerns, weighed on risk appetite overnight… Our US credit experts are not sounding the alarm though… KRE in focus after Thursday’s sell off was triggered by WAL and ZION disclosing exposure to alleged fraud to funds in distressed commercial mortgages. Fear of contagion is understandable, given memories of the SVB collapse in March 2023. However, our experts think the overall US credit market remains healthy, suggesting limited spillover at this time even if there may be further credit events.” [NY Open, 17 OCT]

• CREDIT AGRICOLE:

• • “While the FOMC meeting on 29 October should continue to be the key macro driver in the near term, headlines around US-China trade tensions and the dynamics of the potential meeting between Donald Trump and Xi Jinping are set to fuel volatility to the FX market in the coming weeks. We think it is possible that a Trump-Xi meeting could still take place, though we cannot be too optimistic to expect major breakthroughs. As such, though the market correction so far has been much milder than in April’s episode of tariff uncertainty, more caution is still warranted.” [Emerging Market Weekly, 15 OCT]
  • “The two sides continue to hold firm in their [government shutdown] positions, with no visible signs of progress and very limited discussions even taking place. The path forward would likely have to involve either (1) one of the two parties caving; (2) leadership holding firm but a group of Democrats defecting; or (3) Republicans using the ‘nuclear option’ to end the filibuster. None of these seems imminent, however, so the shutdown is expected to drag on at least into next week and very possibly for longer. We continue to maintain our base case that the shutdown will have limited impact on the longer-term economic outlook, despite creating noise in the short term. This would follow the typical historical pattern, where a drag on activity during the shutdown is followed by a boost once the shutdown ends, largely cancelling each other out. However, the longer the shutdown lasts, the higher the chance of some lasting impact.” [Economic Focus, 15 OCT]

• GOLDMAN SACHS:

• • “On the macro front, the Philadelphia Fed manufacturing index dropped to -12.8 in October, well below expectations… When the Philly Fed survey comes in weaker than expected, it generally signals deteriorating manufacturing conditions in the Mid-Atlantic region, which often serves as a proxy for broader US manufacturing health.” [Midday Market Intel, 16 OCT]
  • “Raised our 3Q25/4Q25 US GDP growth forecasts to 3.3%/1.3% (QoQ, ann., vs.2.8%/0.9% previously) partially reflecting a stronger contribution from the federal government than we had previously assumed, which brings our full-year GDP growth forecast to 1.9% (Q4/Q4, vs. 1.7% previously).” [Macro at a Glance, 15 OCT]
  • “Focus more recently had turned to the possibility that US growth could turn out to be better than expected going into 2026. But attention shifted late last week to downside risks amid renewed US-China trade tensions, which served as a reminder that fresh shocks are a source of downside risk.” [Global Markets Daily, 15 OCT]

• JP MORGAN:
  • “The FX markets are a fickle place. Fed doesn’t need to cut as much US economy is fine shutdown or no shutdown, France & Japan are doomed, the dollar selloff is done, cue the 180. Wouldn’t want to dismiss the severity of the China spat or the potential spillover from the emergence of a few credit issues but we have gone from apathy to panic in 24 hours, perhaps we are just somewhere in between!” [G10 FX, 17 OCT]
  • “The credit ‘one offs’ that each of these companies disclosed in their 8Ks come on the heels of the Tricolor and First Brands bankruptcies that have surfaced over the past month (with some regional banks disclosing exposure to these companies), as well as much more investor scrutiny on banks’ loans to non-depository financial institutions (or NDFIs) given the rapid growth in that loan category across the industry over the past several quarters. While we are questioning why all of these credit ‘one offs’ are seemingly occurring in a short period of time, the reality is that even though these exposures may be “well-contained” and have a “limited financial impact,” this is an industry where investors—especially those that are new to this sector—tend to “sell first and ask questions later,” especially when it comes to elevated credit concerns. We believe this is primarily due to the idea that there has not been a downturn/recession in over a decade that would have allowed regional banks to test their loan portfolios in times of stress.” [US Market Intel, 17 OCT]
  • “The latest jobless claims look quite decent, and suggest layoffs remain low with movement in the unemployment rate.” [US, 16 OCT]

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