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Home / Business / US recession hedge rise as trade tensions between the US and China rise: Reuters vote

US recession hedge rise as trade tensions between the US and China rise: Reuters vote



BENGALURU (Reuters) – Over the past month, the US-China trade war has increased the risk of a US recession, a large majority of economists asked by Reuters, now putting the chances of it happening in the next two, says years at 40%.

FILE PHOTO: A cashier handles money at Macy's Herald Square at Manhattan, New York, USA November 23, 2017. REUTERS / Andrew Kelly / File Photo

It's up from a median 35% in last month's poll, The first time it had dipped slightly from where it was held since December last year, before a crushing sale on Wall Street in 2018 finally came, partly because of these concerns.

US President Donald Trump has rejected the ongoing commercial war with China as a "small squabble", but there are clear indications that the conflict is already having an impact on the economy, and the stock market has been frightened.

"I find it hard to think of a scenario where further escalation of the trading tension we currently do not give rise to recession risk is higher," said Michael Hanson, head of global macro strategy at TD Securities.

"We are already in a situation where the tariff level that is either imposed or threatened to be imposed over the next few weeks is quite high … and a move to set prices at 25% on everything we import from China is a very real feature of the economy, says Hanson.

While only a single-digit percentage of respondents say that a US recession is likely in the coming year, more than a quarter of economists see a greater than 50% probability of a recession within two

The most pessimistic call for the likelihood of a one-year recession has also crept up, from 60% to 70%.

The US economy is expected to have lost significant momentum, dropping to 2.0 % in today's quarter from 3.2% in the first three months of the year, according to median forecasts from the latest monthly poll of 120 economists.

This April-June forecast is a sharp downgrade from 2.5% in last month's survey, delvi s as a result of the unexpectedly strong number reported for January-March. Growth is expected to slow to 1.8%, below trend, in the fourth quarter of 2020.

The impact of the trade war has already been felt on the economy, with retail giants like Walmart Inc warning customers that prices will rise due to higher tariffs on Chinese imports.

Almost 75% of economists, or 52 out of 70, who answered a further question of what the US and China trade trend had done this month for the risk of a US recession said they had increased.

China is trying to control its economy from exporting cheap goods and more to household consumption. But the United States, which is already a very consumer-related economy, imports hundreds of billions of dollars worth of goods from China, which the Trump administration charges with tariffs.

Very few economists believe that this will do anything but harm the economy.

"There actually seems to be a belief in the White House that trade wars are both good and winnable. Delusion creates huge risks," says Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

With uncertainty in trading and Increased chance of recession, the Federal Reserve is expected to keep interest rates at current 2.25-2.50% to the end of next year at least.

But over half of the smaller set of economists who answered another additional question said the Fed likely to cut prices before the end of 2020. Among these respondents, more than 80 percent expect the interest rate to be cut to the central bank's next political move.

Although Fed officials had previously played down the likely impact of the trade war on the US economy, they emphasized Monday a long-standing struggle for tit-tatat was another matter that could require a Fed answer.

While interest rate futures are priced in an average as soon as October, the result is by the Reuters survey the latest evidence that the global interest rate cycle after the major recession over ten years ago is over.

FILE PHOTO: Shoppers ride escalators at Beverly Center Mall in Los Angeles, California November 8, 2013. REUTERS / David McNew / File Photo

Stressed a weak demand view, core PCE forecasts, Fed's preferred inflation metric, were cut to average 1.7% from 1.9% this year and 2.0% from 2.1% by 2020.

"If we have a recession, it's likely to be caused by the Fed. We're in a chronic disinfectant environment , caused by the supply side of the equation, not the demand side, says Gary Cloud, co-responsible fixed income investment manager of FCI Advisors.

(Graphic: US Recession Probability – tmsnrtrsrs / 2HpCwBw)

Additonal reporting by Shrutee Sarkar, analysis and reconciliation of Nagamani Lingappa, Richa Rebello and Indradip Ghosh; Editing Ross Finley and Jonathan Oatis

Our Standards: Thomson Reuters Trust Principles.

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