The trade war between China and the United States in 2018 may not live up to what is on the horizon. The outcome of the US presidential election could lead to a new tariff showdown that would affect global growth, not just that of the two economies. Barclays believes that the new trade war would affect the US economy by 1.4% compared to the 2% that China would see reduced in the year following the application of customs duties. The eurozone would not escape the increase in import taxes either, whose GDP would suffer by 0.7%.
After the European Central Bank’s interest rate cut, the market is looking beyond the US Federal Reserve meeting next week. The meeting of the country’s monetary policy chief is now of greater importance to financial markets, which are taking the first interest rate cut for granted. However, the next eight weeks will be marked by US presidential race and its consequences for the world of a victory by Donald Trump or Kamala Harris.
A Democratic victory would raise the corporate tax to 28%, “which would immediately hit U.S. equity earnings and would likely be poorly received by the stock market,” said Ajay Rajadhyaksha, global chairman of research at Barclays. But it would be Donald Trump’s triumph which would cause a real shock to the US economy if blanket tariffs were applied to 10% of all imports and 60% of all Chinese imports.
“The impact would be noticeable in the United States, but it would be more evident for the Chinese economy,” said Marc Giannoni, Barclays’ chief U.S. economist. Moreover, the investment bank’s forecasts would only reflect the initial effects of a trade war, as over time, global trade would be further affected and would leave a bigger footprint on small economies and open (like the European ones) than for large or island ones. “For the moment, it is difficult to predict the outcome of the elections, but in a global trade war, everyone loses,” the expert commented.
For now, Barclays prefers global equities to fixed income in the current environment where interest rates are set to fall around the world and unemployment remains at low levels. He says investors can choose to stay away for those eight weekswhile waiting for more clarity to emerge after the presidential elections in the United States.
Overall, Barclays expects global equities to end the year above current levels, although it is true that on Wall Street and the UK stock market the potential is more limited. The signing comes to S&P 500 at 5,600 points which would imply an upward trajectory of less than 1% compared to current levels. And in the case of the Ftse 100 in London, the margin for improvement would be reduced to less than 0.5%. It would therefore be on European stocks (with the example of the EuroStoxx) that the future trajectory would be close to 10%.
In fixed income, Barclays sees the US 10-year bond yielding slightly higher than previous levels. They expect these debt instruments to hold at 4% on average at the end of 2024 and in the first six months of next year. A similar forecast is envisaged for the UK 10-year bond, which would be not far from 3.9%. In contrast, the European sovereign debt would be around 2.2% The average profitability of four-thirds of the current military would fall to 2% in the third quarter of 2025. Japanese debt maturing in a decade would reach 1.15% at the end of the first quarter of next year.
