US: Economy facing trade war fears and Fed repricing – Danske Bank

Danske Bank analysts point out that Trump increased his pressure on China with tariffs moving from 10% to 25% on USD200bn worth of Chinese goods in May and worsened the tension with new threats of additional measures if Xi Jinping failed to meet him during the G20 meeting in late June.

Key Quotes

“We do not expect a deal until H2 19, as we probably need to see more pain on both sides before they are willing to resume the serious trade talks. US growth seems to have peaked, inflation expectations and actual inflation are low and trade uncertainty may start weighing on the economy. Without more easing, it also increases the likelihood of sub-trend growth or perhaps even a forthcoming recession.”

“We have changed our call to the Fed cutting by 75bp by year-end, with the first cut already in July. We still have a constructive US macro outlook, but we believe the risks are greater by not easing at all than easing too much or too early. If the Fed cuts rates, it is unlikely to be a ‘one and done’ cut, at least seen from a historical perspective, as the Fed usually follows a cut by lowering the rate further.”