قالب وردپرس درنا توس
Home https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Business https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Wall Street is seen increasing the risk of recession

Wall Street is seen increasing the risk of recession

  New York Stock Exchange "title =" New York Stock Exchange "/> </source></source></source></source></picture></div><figcaption>
                  President Donald Trump has moved from boasting about stock market gains to blame the Federal Reserve for recent declines and tendencies in economics. | Richard Drew / AP Photo </p>
<div class=

finance & taxes

Stocks are falling and fear of a slowdown as Trump approaches his reelection efforts.

In recent days, economists at Goldman Sachs, Morgan Stanley and Bank of America have warned that Trump's bitter trade war with China is taking a bigger bite economic growth than expected.

Story Continues Below

Warnings came as stocks suffered another major dip on Monday with the Dow closing 400 points, or 1.5 percent. The blue-chip index closed at 25,897, more than 700 points lower than in January of 2018 before Trump's campaign starts.

The collective wisdom now spreading across Wall Street has no trade deal to deal with in China before the 2020 election; business investment will continue; and a series of interest rate cuts from the Federal Reserve are inadequate to extract growth from an economy now in its tenth year of expansion – the longest stretch in American history.

"It makes sense for everyone to go down, because everybody thinks we have some kind of trade with China right now and we don't," said Megan Greene, an economist and senior fellow at Harvard's Kennedy School of Government.

"And now we have the risk of a trade war turning into a money war," he said. "The consumer is still pretty strong, but the investment in the business looks bad and if it goes again it will be today."

The president has moved from boasting about stock market gains to blaming the Fed for recent declines and softness in the economy. Overall economic growth cooled to a 2.1 percent pace in the second quarter after nearly hitting Trump's goal of 3 percent last year following a round of tax cuts and higher federal spending. And he promised that he would win the fight in China.

"The Fed's high interest rate, compared to other countries, is keeping the dollar safe, making it harder for our good manufacturers," Trump tweeted last week.

Economists, however, note that interest rates adjusted for inflation remain low by historical standards. And few businesses report having any problem getting credit. The central bank last month reversed course and cut rates to a quarter point, citing uncertainty from the trade war. Wall Street analysts expect at least one more cut rate this year and maybe two or three.

Instead of blaming the Fed, economists on Wall Street refer to Trump himself as the biggest anchor in markets and the economy.

"Fear that the trade war will cause a recession is growing," Goldman Sachs economists led by Jan Hatzius wrote in a note to clients over the weekend. "We expect tariffs targeting the remaining $ 300 billion of US imports from China to take effect and we do not expect a trade deal before the 2020 election."

Goldman used the estimate of the potential hit from the trade war to 0.6 percent of gross domestic product, both through the direct channel of higher costs due to tariffs and reduced investment by businesses that feared later. that will happen. Goldman now expects the economy to grow by just 1.8 percent in the fourth quarter of the year.

Bank of America analysts led by Michelle Meyer in a note on Friday increased their warning to a recession in 2020.

"We are worried," wrote the analysts . "We have a number of early indicators that start with the signal that increases the risk of recession. Our official model has the possibility of a setback in the next 12 months that is pegged at almost 20 percent, but our subjective call based on the killed data and events led us to believe that it was near a 1-in-3 chance. "

These indicators include the fact that Investors are now demanding higher interest rates on short-term debt than longer-term debt, a phenomenon known as a "reversed yield curve" that has the potential to push ahead with recession. The upside curve generally means that investors expect economic conditions to be worse than better in the future.

The Fed's cut rate is in part intended to fix this problem in the bond market. So far it has not worked. Yields on the 10-year Treasury bond fell 1.64 percent on Monday. The firm's refusal led to speculation that the US could experience the kind of negative yield – which people essentially pay to lend money to the federal government – experienced in other parts of the world including Europe. and Japan.

A bitter Wall Street mood worsened last week after China allowed its currency to depreciate more than 7 yuan in dollars in the face of Trump's latest tariff threat. It led Treasury Secretary Steven Mnuchin, at Trump's urging, to label China a currency manipulator for the first time in the last quarter.

Other central banks around the world including India, New Zealand and Thailand have also moved to cut rates and potentially weaken their currencies, raising fears of a global currency war with wild unpredictable impact.

The US has long been leading the global consensus that currencies should generally reflect the underlying economic conditions. If the administration moves to reduce the dollar, it could lose that role and other countries can retaliate – perhaps slapped by American exporters even though US consumers have less power over purchase. worse, global growth remains weak and inflation expectations are falling, "Morgan Stanley analyst led by Ellen Zentner said Monday." Higher market volatility and increased trade news flow could weaken consumer sentiment and spending. "Growth has cooled below two percent several times during the current expansion only to rebound. The Fed expects its policy shift will ensure that it does happen again. by some administration officials that Wall Street had just made a mistake.

Top trading advisor Peter Navarro last week called all sales a "massive overreaction" and blamed Goldman Sachs as "commander-in- Wall Street chief of off-shoring. ”

Analysts say this is not just a direct effect of the economic war that is hanging on the economy. In addition to the upside of the yield curve, they see other scary warnings. "Three of the five economic indicators (auto sales, industrial production, and aggregate hours worked) monitor the business cycle closely to levels consistent with the beginning of the previous recession," written by Bank of America analysts.

Source link