Aurelia Butler

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Trump has outlined plans to impose aggressive tariffs on the $3 trillion worth of imports into the US, including a 10% to 20% levy on all foreign goods and a 60% tax on items from China.The former president has said the tariffs are needed to protect working-class jobs and crack down on what he has deemed to be unfair practices by US trading partners, particularly those with which Washington runs a large bilateral trade deficit, such as China and the European Union.During his first term, then-President Trump oversaw a period of high trade tensions with Beijing that stemmed from a raft of tariffs slapped on Chinese-made goods. Current President Joe Biden’s administration has left most of Trump’s tariff in place.Funding raised by the Trump’s latest tariff plan, estimated to be in the trillions of dollars, could help offset the costs of sweeping corporate tax cuts that he is also targeting, according to media reports.But in a note to clients on Thursday, the Barclays analysts projected that the tariffs proposal would lead to a 3.2% drag on S&P 500 earnings next year, along with an additional 1.5% hit if countries choose to retailate with similar measures.”While the direct impact seems modest, second-order effects from a combination of higher prices and lower-growth shocks that tariffs imply could act as an incremental headwind to corporate earnings,” the analysts wrote.They added that the “materials, discretionary, industrials, technology, and healthcare sectors” appear to be “most at risk” from the tariffs “given their strong dependency on global supply chains.”Beyond equities, the Barclays analysts said the tariffs would lead to supply constraints, lifting prices and fueling a short-term rise in inflation, “especially in the US.”The Federal Reserve, which is widely tipped to begin ratcheting down interest rates from 23-year highs at its next meeting on Sept. 17-18, would likely choose initially to keep borrowing costs elevated in response to the inflation uptick, the analysts projected.”But as activity starts weakening, amid trade policy uncertainty and tighter financial conditions, we would expect the Fed to ease policy rates more aggressively, possibly as much as [100 basis points],” the analysts said.Following a key presidential debate between Trump and Democrat Kamala Harris on Wednesday, national polling shows Trump’s rival holding a narrow lead for the White House, although the race remains tight in crucial swing states.Regardless of the outcome of November’s ballot, the Barclays analysts projected that the US Congress will remain divided at least at the beginning of either Trump or Harris’s administrations. As a result, they argued that the new president would likely need to “resort to executive and regulatory actions to advance policies that do not require legislation.””For example, the president has wide authority to set tariffs,” they added. More

Analysts at BCA Research argue that while these imbalances may not lead to a deep recession, they are substantial enough to produce a downturn.One of the most glaring imbalances in the U.S. economy is found in the real estate sector, particularly commercial real estate (CRE). Office vacancy rates have reached record highs following the COVID-19 pandemic. Prime office spaces are being sold for fractions of their former value, and CRE prices are showing the worst performance since the Global Financial Crisis (GFC), with prices down 8.9% year-over-year in Q1 2024​.Furthermore, regional banks, which are highly exposed to CRE, face increased vulnerability. Delinquency rates in this sector are rising, and another wave of bank failures could occur if CRE distress continues to worsen. “The number of multi-family units under construction surpassed 1 million last August, more than double the level reached during the 2000s housing bubble,” the analysts said.In residential real estate, a price imbalance has emerged. Real home prices are 22% above pre-pandemic levels, pushing home affordability to historical lows. With fewer home purchases, homebuilders have reduced starts, further dragging down residential investment​. Residential investment typically contracts in the lead-up to a recession, and current data from the Atlanta Fed’s GDPNow model indicates a 8.5% annual decline in the third quarter.Consumer behavior is another major imbalance in the economy. The personal savings rate has plummeted to just 2.9%, less than half of its 2019 level. While personal outlays have grown by 5.3% over the past year, disposable income has only risen by 3.6%, forcing consumers to rely on savings​.However, the depletion of pandemic-era savings suggests that consumer spending will likely slow down in the coming months.Moreover, income growth is set to decelerate further as wage growth slows and the labor market weakens. The average workweek is shrinking, which, combined with slowing compensation, is likely to exert downward pressure on earned income.Rising delinquency rates on credit cards and auto loans, now at their highest since 2010, suggest that consumer borrowing cannot be relied on to sustain consumption​. Banks have responded by tightening lending standards, making it more difficult for consumers to rely on credit​.The manufacturing sector, too, is showing signs of strain. New orders in the manufacturing sector fell to 44.6 in August 2024, the lowest level since mid-2023, reflecting weak demand both domestically and abroad. The overhang of consumer durable goods spending, which surged during the pandemic, continues to weigh on the sector. Even though spending has moderated, it remains well above pre-pandemic levels, suggesting that demand for manufactured goods is unlikely to reaccelerate in the near term.Global factors, such as China’s economic slowdown and Germany’s loss of competitiveness, also weigh on U.S. manufacturing. China’s shrinking domestic demand has led to a surge in exports, contributing to global supply gluts, while Germany’s rising unit labor costs make it less competitive within the Eurozone.Fiscal policy, which traditionally acts as a countercyclical tool during downturns, is constrained by an unprecedented budget deficit of 7% of GDP. This limits the government’s ability to implement stimulus measures during a recession. In addition, state and local government spending, which has contributed significantly to GDP growth in recent years, is expected to decline in 2025. With fewer resources for fiscal intervention, the U.S. may find it difficult to counter the effects of an economic slowdown.Equity markets, too, are showing signs of vulnerability. While a mild recession might not severely damage the broader economy, it could trigger a correction in stock prices. The S&P 500 is currently trading at 20.8 times forward earnings, a 42% premium over fair value estimates​.If the U.S. does slip into a recession, equity markets could see a downturn similar to the 2001 recession when the S&P 500 fell 49% peak-to-trough, despite the mildness of the economic contraction. More

Macklem told the newspaper in an interview that rate-setters are concerned about Canada’s labor market and the possibility of lower oil prices hitting the economy. “As you get closer to the [inflation] target, your risk management calculus changes,” Macklem told the newspaper. “You become more concerned about the downside risks. And the labor market is pointing to some downside risks.”The BoC, after keeping its key policy rate at 5%, a more than two-decade high, for a year, has trimmed it by a quarter point three times in a row since June, bringing it down by 75 basis points to 4.25% earlier this month.Overall inflation in Canada in July fell to a 40-month low of 2.5%.Macklem said last week that while the bank saw growth strengthening, there were some downside risks to the expected pick-up.”Trade disruptions may mean larger deviations of inflation from the 2% target,” he said in a speech to the Canada-UK Chamber of Commerce in London. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Bank of Canada governor Tiff Macklem has opened the door to accelerating the pace of interest rate cuts, signalling policymakers could switch to jumbo 50 basis-point moves should growth disappoint.The G7 economy grew by an annualised rate of 2.1 per cent over the second quarter, but concerns are mounting that falling oil prices, higher unemployment and lower levels of immigration could tip Canada close to stagnation. Macklem told the Financial Times that rate-setters were increasingly concerned about Canada’s labour market and the possibility of lower prices for crude hitting the economy. The Canadian central bank has led the way on interest rate reductions, cutting by a quarter point in its three meetings since June to bring borrowing costs down from a peak of 5 per cent to 4.25 per cent. With inflation, at 2.5 per cent, now close to the bank’s 2 per cent goal, Macklem said in London last week that there was now room to step up the pace of rate cuts. “As you get closer to the [inflation] target, your risk management calculus changes,” Macklem said. “You become more concerned about the downside risks. And the labour market is pointing to some downside risks.”Canadian unemployment reached 6.6 per cent in August from a low of 4.8 per cent in 2022, a much faster increase than in the US. American unemployment by contrast has risen only to 4.2 per cent from a pandemic-era low of 3.4 per cent. The US Federal Reserve is expected to cut interest rates for the first time in more than four years on Wednesday, from a 23-year-high range of 5.25 to 5.5 per cent. Canadian job vacancy and hiring rates have also fallen below their pre-pandemic norms unlike those in the US.  The Bank of Canada still expects the economy to expand by 2 per cent in 2024 and by 2.1 per cent next year. But if growth does not materialise as expected, “it could be appropriate to move faster [on] interest rates”, Macklem said. He noted that there was currently “enough slack in the [Canadian] economy to bring inflation back down to target”. “We don’t want to see more slack,” he said, implying that the central bank would cut rates more aggressively should growth disappoint. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Concerns about the health of the Canadian economy have spread across the business and financial community. Speaking at the Canada Club in Toronto on Tuesday, David McKay, head of the Royal Bank of Canada, one of the world’s largest banks, said Canada was “heading in the wrong direction”.Added to the list of downside risks worrying the governor is an oil price that has fallen sharply in recent weeks. The G7 economy is a large net energy exporter, with the oil and gas industry accounting for more than 3 per cent of GDP in 2022, according to the Canadian Association of Petroleum Producers. Macklem noted that Canadian oil producers were used to fluctuating global prices, but that “[i]f it’s a really sharp cycle, it’s going to have a big impact”. The governor said the central bank had not yet decided on a faster path of rate cuts and there were still upside risks to inflation that it needed to monitor — including shelter prices, predominantly rent and mortgage interest costs. The Canadian rental market has been tight due to supply constraints that have been exacerbated by recent large increases in immigration. Rent prices rose close to 9 per cent in the year to July. Canada added about 500,000 immigrants, a historically high level against a population of 39mn, in 2023. “We expect to see rent price inflation come down,” Macklem said, though he acknowledged “that could take some time”.Meanwhile, Canadian productivity growth has been surprisingly weak since the pandemic, underscoring its economic troubles relative to the US. Macklem said: “What we thought was that as those supply chain disruptions are worked out . . . new workers get trained, you should see some pick-up in productivity growth. That is not what happened in Canada, and in fact it’s not what’s happened in the UK. It’s not what’s happened in Europe . . . ”He added: “There’s something about the pandemic that has really hurt productivity growth in many of our countries . . . the US is the exception.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Economic output has been held up in Canada by a significant inflow of immigrants. But that may change going forward, as the government of Canada recently announced curbs to temporary foreign workers. While a reduction in immigration could take some heat out of the Canadian rental market, it is expected to make the economic situation worse. Macklem hoped that the reduction in consumer demand implied by fewer immigrants would be offset by easing borrowing costs. “Our expectation is you’re going to start to see per-capita consumption coming up.”Additional reporting by Ilya Gridneff in Toronto More

LONDON (Reuters) – British businesses are worried that greater protections for employees planned by the newly elected Labour government will make it more risky to hire new staff, the Confederation of British Industry (CBI) said on Sunday.Labour pledged in its election campaign to require employers to offer all staff parental leave, guaranteed minimum hours, sick pay and protection from unfair dismissal. The government is now preparing specific legislative proposals.Under current law, staff employed for less than two years can be dismissed without an employer needing to prove misconduct or poor performance.The CBI said an annual survey of employers, conducted with recruitment agency Pertemps, showed widespread concern among smaller businesses that it would become hard to sack new workers who did not perform well.”While the government has said that businesses can use probation periods, the possibility of decisions at the end of probation being challenged at employment tribunal has 75% of respondents saying they’d be more cautious about taking on new staff,” CBI work and skills director Matthew Percival said.The CBI said 62% of employers expected Britain to become a worse place to invest and do business over the next five years, driven by a 6 percentage point rise since last year in those expecting things to become “much worse”.Employment regulation was a problem for 39% of employers at present, but 58% expected it to become a problem over the next five years, according to the survey of 152 businesses, two thirds of them small or medium-sized. Britain’s unemployment rate is low by historic standards at 4.1%, but the Labour Party has criticised the previous Conservative government for allowing labour force participation to fall from record pre-pandemic levels.Labour wants to raise the labour force participation rate to a record 80% of the working-age population from 78.1%. Before the pandemic, the rate peaked at 79.5%. More