By Dhara Ranasinghe, Alun John and Samuel Indyk
LONDON (Reuters) – Global growth concerns have shot back onto the radar of financial markets as weakening U.S. economic data and growing trade tensions hurt consumer confidence and business activity.
Although recession is not the base-case scenario for economists, given underlying U.S. resilience, recent data has unnerved investors and U.S. President Donald Trump’s new 25% tariffs on Mexico and Canada are exacerbating growth concerns.
A shift in the mood music is apparent across markets.
Oil prices are at their lowest since October, stocks from New York to Tokyo are retreating from recent multi-year highs and two-year U.S. Treasury yields are at their lowest since October as bond investors see increased chances of near-term rate cuts.
“One thing is essential for an economy and that’s confidence, which has taken a hit,” said Francois Savary, chief investment officer at Genvil Wealth Management, referring to weakening U.S. consumer and business sentiment.
“I don’t think it’s (recession) a done deal but it’s a reason why we have decided to decrease (U.S.) equity exposure.”
U.S. consumer confidence in January slumped the most in 3-1/2 years, retail sales dropped by the most in nearly two years, and Monday’s U.S. manufacturing activity data showed big falls in new orders and employment.
“We don’t think we will see a (U.S.) recession but we do see a modest growth slowdown,” said Joost van Leender, senior investment strategist, at Van Lanschot Kempen Investment Management in Amsterdam, adding consumers were feeling uncertain about “chaotic” U.S. policy.
Van Leender said he had trimmed U.S. equity holdings in late January and is overweight Treasuries as yields are likely to fall as the economy decelerates.
Highlighting the change in fortunes, the Atlanta Fed’s GDPNow model estimate for annualised growth this quarter on Monday fell to -2.8% from +2.3% a week ago.
Analysts stress that recent U.S. data is likely to have been skewed by one-off factors such as cold weather, and strong imports in the case of the Atlanta Fed’s model. But they also note that a trade war means focus is quickly shifting from inflation to the growth risks from U.S. tariffs.
China has responded to a doubling of duties on Chinese goods to 20% with additional tariffs of 10%-15% on certain U.S. imports from March 10. Europe is also in the firing line for higher U.S. tariffs, and trade-vulnerable auto stocks dropped 4% on Tuesday after the tariffs on Mexico and Canada, where many cars for the U.S. market are made.
