Wall Street still sees heavier looming clouds of a global economic recession on the near horizon despite misleading statements from President Donald Trump the U.S. and China have again agreed to hold talks to resolve the trade war.
If anything, the risk of a global recession and a market retreat has increased markedly since last week, said Morgan Stanley. The firm predicts the global economy will fall into recession six to nine months after the U.S. and China enforce their new round of tariffs announced last week, wrote Morgan Stanley Chief Economist Chetan Ahya.
"Risks remain skewed towards further escalation at least until the material market or economic weakness shows," wrote Ahya in a note to clients. "Continued trade tensions, combined with reactive monetary and fiscal policy, mean that the risk of non-linear tightening in financial conditions, triggering a global recession, is high and rising."
The grim global economic outlook is bad enough that investors should consider a portfolio shift, wrote Mark Haefele, a chief investment officer of UBS Wealth Management Global.
"With talks between the US and China dominating market moves over the near term, investors should brace for higher volatility. We believe it is prudent to take action to neutralize part of this event risk," he wrote.
"As a result, we are reducing risk in our portfolios by moving to underweight in equities to lower our exposure to political uncertainty."
Haefele said he's no longer confident the U.S. Federal Reserve is capable of pushing stocks higher despite its power to minimize downside risk. He said UBS continues to recommend investors look for opportunities to carry strategies in credit and foreign exchange markets, which stand to benefit from a worldwide shift by global central banks to easier monetary policy.
"We continue to take a risk on income-enhancing strategies, which benefit from central bank easing as global growth slows," he wrote. "This includes overweight positions to European investment-grade bonds and ... an overweight to US dollar-denominated emerging market sovereign bonds."
In his usual fashion, Trump yesterday predicted a great trade deal with China is at hand but provided no proof to prove his contention. He claimed Chinese officials had contacted their U.S. trade counterparts overnight and offered to return to the negotiating table.
"China called last night our top trade people and said 'Let's get back to the table', so we'll be getting back to the table, and I think they want to do something," alleges Trump.
On the other hand, Chinese Foreign Ministry spokesman Geng Shuang said he hadn't heard a phone call between the two sides had taken place, as Trump falsely claimed. China's Commerce Ministry, which normally releases statements on trade calls, made no mention of Trump's claim.
