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DESPITE STOCK TUMBLE, MARKETS SEE LITTLE RECESSION RISK

Stocks, the dollar and oil all plunged after U.S. President Donald Trump announced higher than expected country trade tariffs on Wednesday, raising fears over an economic slump.

But Societe Generale analyst Jitesh Kumar says credit market pricing still suggests that an economic downturn is not likely.

“For now, financial assets are pricing in very little risk recession risk. High yields spreads are still below 4%, and we have never been in recession with high yield spreads below 4.5% (data going back to 1987). In other words, US HY credit spreads are pricing in 0% recession probability,” he said in a report.

As for other markets, the VIX Index implies a recession probability of 28%, up around 15% since the tariff announcement.

Federal Reserve indicators, meanwhile, are wildly divergent. The New York Fed/St Louis Fed GDPNow suggests a recession risk of less than 10%, while the Atlanta Fed’s gold-adjusted GDPNow points to a 73% risk of a downturn.

Kumar concludes that “our credit strategy team is not expecting the worst, and spreads may not widen as much as they historically have because of structural changes in the asset class. However, if there was to be a significant slowdown in growth, credit seems to be (empirically) the least ready asset class...”

(Karen Brettell)

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FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:

NOW WHAT? AS STOCKS TUMBLE, KEEP AN EYE ON THE VIX - CLICK HERE

POST LIBERATION DAY ECONOMICS: JOBLESS CLAIMS, LAYOFFS, SERVICES PMI, TRADE - CLICK HERE

S&P 500 SINKS AMID MOUNTING RECESSION FEARS - CLICK HERE

GEARING DOWN CRUISE MODE: SCOTIABANK DOWNGRADES US EQUITIES AFTER LATEST TARIFFS - CLICK HERE

S&P 500 FUTURES TRADE SHARPLY LOWER ON TARIFF TUMULT - CLICK HERE

DON'T BANK ON FED CUTS AFTER TARIFFS - COLUMBIA THREADNEEDLE CIO - CLICK HERE

TENTATIVE OPTIMISTS MULL BEST OUTCOME AFTER TRUMP TARIFFS - CLICK HERE

TARIFF RISKS, IS PHARMA OUT OF THE WOODS? - CLICK HERE

DEFENSIVE BUYING LIMITS THE DAMAGE - CLICK HERE

EUROPE BEFORE THE BELL: HEAVY SELLOFF COMING - CLICK HERE

SEEMS INVESTORS REALLY DON'T LIKE TARIFFS - CLICK HERE