He continues: “With the underlying dynamics of the global economy and the US economy, I would probably have said that the recession risk that emanated from that at least as we were turning into the new year, was probably something more normal, which would be 15% to 20%.”
Speaking at a media briefing on March 12, Kasman says: “The 40%, implicitly, is assuming that the US doesn’t follow through on the threats in early April. If we follow through and we get the reciprocal tariffs after the tariffs put on Mexico and Canada, and those threats don’t go away after 20 minutes or a day or a week, then I think the probability of recession, for the US will have gone up to at least 50% or probably even above it.”
While the economist expects some level of tempering of the tariff threats put forward, he notes that the US Federal Reserve is in a “very difficult” position, with tariff impact likely leading to higher global inflation and modest negative economic growth.
Kasman says: “Our broad view is that the US Fed is asymmetric in that around that caution, it would be more likely to respond to outright signs of growth weakness, even if inflation is staying high. At the same time, I think it will be relatively slow in responding to high inflation as long as there is a material growth risk that exists.”
See also: Trump says US to impose 30% tariffs on EU, Mexico next month
Overall, with the mercurial attitude adopted by the Trump administration, the only perennial thing that Kasman can point to in his outlook for the rest of the year — or for the remainder of this administration — is change.
“I don’t think there’s any doubt that Trump is trying to reset the US economic structure in a number of different ways,” he says.
He explains: “In a way that some of these things can be quite disruptive and can have big negative drags, other things can actually be positive. The regulatory reset in terms of opening up energy production, removing climate change restrictions, taking out financial regulations which are putting pressure on bank balance sheets — all of those things are perennials; they’re not going away.”
See also: Trump threatens 35% Canada tariff, floats higher blanket rates
Where can investors look?
In light of the current global context, JPM’s head of credit, currency and emerging market sales Serene Chen says investors could feel fatigued despite only two months having passed since the start of the year.
Chen adds: “With all the zig-zags of the policies, the sudden changes of directions, it’s very difficult for investors to comprehend and prepare for it. So, if you ask about investor sentiment, of course, it has been dented by the uncertainties in the policy.”
The challenge, she notes, is for investors to identify where to rotate from US exceptionalism. Emerging markets, or the Hang Seng Index (HSI), could be one such area.
“I think that you will see emerging markets be a net beneficiary of potentially the Fed bias towards slightly lower rates, which all the emerging market central banks have been waiting for breathing room to potentially cut. That is where we see investors starting to put in a little bit more money, because over the last two, three years, the emerging markets have seen a net outflow in terms of asset class, in local currency terms,” adds Chen.
China is gunning for a repeat of its 5% GDP growth this year, higher than the World Bank’s forecast of 4.5% and the International Monetary Fund’s 4.6%. The country has also continued to lure investors, particularly in the IT and tech space.
“Investment-grade bonds were actually one of the best-performing asset classes in terms of Asia credit, because there's still a lot of demand for dollar credit from Asia and specifically, the Chinese investor base,” says Chen.
She adds Chinese investors continue to find the nation’s qualified domestic institutional investor (QDII) quota attractive, as is the case with dollar bonds.
“Chinese Government Bond (CGB) only pays 1.5%, versus if you buy Bank of China in dollars, that’s at least a 3% return differential,” says Chen. “So, I think that element is not to be forgotten. The amount of dollar credit demand by Chinese investors, onshore or offshore, continues to be very strong.”
