"Trump Recession" Alarm Sounds! Economic Slowdown Returns to Market Focus, $29 Trillion U.S. Debt Becomes Safe Haven

According to Zhitong Finance APP, as weak U.S. economic data and escalating trade tensions damage consumer confidence and business activity, concerns about global economic growth have once again become a focal point for financial markets.

Although a recession is not the baseline forecast for economists considering the potential resilience of the U.S. economy, recent data has unsettled investors, and U.S. President Donald Trump's new 25% tariffs on Mexico and Canada have heightened worries about economic growth.

Sentiment across various markets has clearly shifted.

With bond investors anticipating an increased likelihood of interest rate cuts in the near term, oil prices are at their lowest level since October last year, stock markets from New York to Tokyo have retreated from recent multi-year highs, and the yield on two-year U.S. Treasury bonds is at its lowest level since October last year.

Francois Savary, Chief Investment Officer of Genvil Wealth Management, commented on the weakening confidence of U.S. consumers and businesses, stating, "One thing is crucial for the economy, and that is confidence, which has been hit."

"I don't think a recession is a foregone conclusion, but this is also one of the reasons we decided to reduce our investment in U.S. stocks."

In January, U.S. consumer confidence saw its largest decline in three and a half years, and retail sales experienced their largest drop in nearly two years. Data released on Monday showed a significant decline in new orders and employment in U.S. manufacturing activity.

Joost van Leender, Senior Investment Strategist at Amsterdam's Van Lanschot Kempen Investment Management, stated, "We believe the U.S. will not fall into a recession, but we do see a moderate slowdown in economic growth." He also noted that consumers feel uncertain about the "chaotic" U.S. policies.

Morgan Stanley estimates that the new tariffs imposed by the U.S. on China, Mexico, and Canada could lead to a decline in U.S. economic growth rates by 0.7 to 1.1 percentage points over the next few quarters, a decline in Canada's economic growth rate by 2.2 to 2.8 percentage points, and a recession in Mexico.

Candice Lane, CEO of the Canadian Chamber of Commerce, warned that U.S. tariff policies are pushing Canada and the U.S. toward "economic recession, unemployment, and economic disaster."

SEB economist Marcus Widén stated in a report, "It's time to add a new term to the dictionary: 'Trump recession'."

Pressure for Rate Cuts

The Canadian dollar and Mexican peso hit a one-month low on Tuesday. Notably, the U.S. dollar typically benefits from trade tensions, but as concerns about U.S. economic growth intensify, the dollar has also weakened Some people believe that the U.S. economy may face risks due to the dual impact of worrying growth stagnation and persistent inflation.

Analysts say that the trade war has put sustained pressure on central banks around the world to cut interest rates to boost economic growth. Traders currently expect the U.S. to cut rates by 75 basis points before the end of the year, with only one cut anticipated when strong data is released in mid-January.

After recording the largest monthly decline since the end of 2023 in February, the yield on 10-year U.S. Treasury bonds is expected to reach 4%.

George Lagarias, chief economist at Forvis Mazars, stated, "The bond market is heading into a period of weakness and may even fall into recession."

The European Central Bank is expected to cut rates again on Thursday, and Morgan Stanley has indicated that due to weakening economic data and inflation, another rate cut is anticipated in April.

Analysts say that even if U.S. economic data improves, the bleak outlook is sufficient reason to remain cautious about the stock market.

A report released by Goldman Sachs on Monday showed that hedge funds, which had previously rushed to buy global stocks, have withdrawn bullish bets and are now betting on a market decline.

The report indicated that consumer discretionary stocks were the worst-performing sector in the U.S. last month, serving as a barometer for the economy and an indicator of consumers' purchasing power for non-essential goods.

With economic growth risks becoming the focus, the highly anticipated U.S. employment report on Friday takes on greater significance.

"This economic cycle is consumer-driven, and once the labor market declines, the economic cycle will come to an end," said Sami Char, chief economist at Longo Bank. "The Federal Reserve must pay very close attention to this."

U.S. Treasury Yields

Investor concerns about the economic impact of U.S. tariffs are growing, with traders betting that the momentum in the nearly $29 trillion U.S. government bond market will continue.

A survey released by JPMorgan on Tuesday showed that net bullish positions in U.S. Treasuries have reached their highest level in 15 years. Large trades betting on the benchmark 10-year Treasury yield falling below 4% are surging, and demand for options to hedge against further price increases is also rising.

The driving factor behind these bets is investors' increasing conviction that President Trump's tariff war will disrupt the U.S. economy. Expectations of slowing economic growth often lead to lower Treasury yields and higher bond prices, as investors rush to digest the rate-cutting effects typically associated with economic slowdowns.

So far, these measures stand in stark contrast to the plans laid out by the Trump administration, which envisioned lowering yields by reducing energy costs and significantly cutting the deficit to alleviate Wall Street's concerns about the increasing supply of new government bonds.

Citi strategist David Bihrer wrote: "The market continues to panic over the possibility of slowing economic growth. Tactical positioning is now one-sided bullish, and deeply profitable."

On Tuesday, new tariffs of 25% on most imports from Canada and Mexico, along with increased tariffs on imports from China, provided the latest impetus for the stock market's rise The 10-year U.S. Treasury yield fell to 4.10% during the trading session, the lowest level since October.

Commerce Secretary Gina Raimondo commented on potential tariff relief measures, pushing the 10-year U.S. Treasury yield up to around 4.24% later that day. However, the yield is still about 55 basis points lower than its peak in January.

On Tuesday, futures traders expected the central bank to cut the benchmark interest rate by nearly three-quarters of a percentage point before the end of the year. Meanwhile, Bloomberg's measure of U.S. sovereign debt has risen about 2% since the U.S. presidential election, surpassing the S&P 500's increase of about 1.2%, including reinvested dividends