Key Takeaways
- U.S. recession chances ease slightly
- Gradual credit recovery in China
- U.S. labor market remains resilient
On the latest edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley discussed how recent trade developments could impact recession risks. He also reviewed credit data from China and the latest employment figures from the United States.
Trade Relief
Cousley said the temporary U.S.-China trade agreement, which substantially reduces tariffs between the two countries, was a very encouraging development. “The deal, which lowers U.S. tariffs on Chinese imports to 30% and Chinese tariffs on U.S. imports to 10%, is good for 90 days while negotiations continue,” he explained.
As a result, the risks of a U.S. recession in the next 12 months look a little lower, Cousley said. “We peg the odds between 35-40%, which is still higher than normal,” he remarked.
In addition to the ongoing talks with China, the U.S. is also holding trade discussions with India, Japan and South Korea. Of these three countries, Cousley said the U.S. is probably closest to securing a deal with India.
Stimulus on Standby
The latest credit data from China points to a gradual improvement in lending rather than a huge pickup, Cousley said. “There hasn’t been a strong resurgence in credit demand yet. I think this is due to softness in the Chinese economy and uncertainty around trade,” he remarked.
Looking forward, Cousley said more monetary easing is likely from the People’s Bank of China. The government could also provide a little more fiscal stimulus, although he said that might be less likely if trade relations with the U.S. continue to improve.
Data Divide
Cousley wrapped up by noting the theme of “soft” soft data and “hard” hard data continues to be in play. He explained that soft data—like business and consumer surveys—remains weak, while hard data—like job listings and consumer spending—is still holding up well.
As evidence, Cousley said the latest U.S. sales and jobless claims numbers were both fairly solid. “U.S. consumers still appear resilient, and we’re not seeing any signs of rising stress in the labor market,” he explained. Cousley said it’s possible the divergence between hard and soft data could begin to narrow in light of the latest trade developments.
“If trade tensions continue to improve, the soft data might start to bottom out and perhaps trend more positive over time,” he concluded.