Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 02 March 2018 at 14:11 GMT

Macro Digest: Probability of US recession soars to 70% – #SaxoStrats

Chief Economist & CIO / Saxo Bank

 Trump's tariffs won't fix America's rust belt – they'll make it worse.
Photo: Jon Rehg /

Get ready for the next recession

By Steen Jakobsen

China's credit impulse has collapsed and that of the US is heading the same direction. Now, US President Trump's decision to slap hefty tariffs on imported steel and aluminium heralds a hugely damaging slowdown in trade flows. The tariffs are, in effect, a massive tax on US consumers and the likelihood of US recession over the next 12 months has rocketed to 70%!

In my 30+ years of trading and economics I have never seen more incorrect assumptions and premises than the ones presented by the US administration on trade. 

  • Trump's trade adviser, Peter Navarro, is the single biggest risk to growth in this cycle. 
  • Tariffs will increase prices for US consumers – effectively it’s a tax on consumption. (Something like 40% of all goods sold at Walmart are China or Asia produced). 
  • Halting trade will reduce the US deficit but it will mean lower growth – US voters will go from spending money they don’t have (current account deficits) to underspending to adjust to both higher prices and less growth. 

This is a new area  in trade and unfortunately an extension of the slowdown in cross country trade seen in the past decade.


The US dollar will weaken further – I remain structurally and tactically very negative on the greenback.

US FI will come down in yield – growth will soon show it's in late cycle rather than in a new cycle.

Inflation – topline – not structural inflation will remain high.

We are risking stagflation-light in the US and recession levels of growth in early 2019.
credit impulse
 Source: Saxo Bank – Christopher Dembik 

This is my favourite indicator of inflation – structural – the net demand on banks (velocity of money) vs US credit impulse:


  • Very long JPY – only true “safe haven currency left”.
  • Short US vs. ZAR, GBP, JPY 
  • Starting to go long US FI again. 
The stock market feels like 2007/08 and 2000 but let's see the present attack on the 100-day simple moving average confirmed:
  • NQ Future @ 6487-00 
  • ES Future @ 2665.00 (Breaking while I write this) 
  • DAX – already significantly below! 
  • SHCOMP – already significantly below! 
Source: Bloomberg

– Edited by Clare MacCarthy


Steen Jakobsen is chief economist and CIO at Saxo Bank 
aspen aspen
you got it -- remember 1987 - that nearly 30 years ago - you will remember ?


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