Latest from BCA Research

Bank Credit Analyst

As high-stakes US-Iran negotiations begin, investors face yet another geopolitical risk, on top of tariffs and trade war. In this collaborative project, we combined BCA’s scenario analysis, probabilities, and financial market impacts with Axioma/Simcorp’s advanced risk analytics platform to produce a valuable contribution to risk management.

The policy-induced decline in consumer confidence has spread to businesses and investors, increasing the probability of a recession even if the administration reverses field on its aggressive tariff measures. We reiterate our defensive asset allocation recommendations.

Special Report

Upgrade the odds of a full-scale war in the Taiwan Strait from 5% to 10%. Rapid escalation of US-China economic war raises the probability of tensions spilling into the military-strategic domain. Investors should buy insurance against this tail risk while it is cheap. Meanwhile, use this year’s trade shock and equity volatility to increase allocation to EM manufacturing states.

Europe’s deflation problem is getting harder to ignore. This week’s ECB cut is just the beginning — tariffs, the euro’s rally, and softening demand all point to more easing ahead. We explain what it means for yields, equities, and EUR/USD.

This week, our three screeners cover equity plays in: Canadian Consumer Staples, high-beta Swedish equities, and factor plays across global equities.

Fed Chair Jay Powell’s remarks yesterday were in-line with our base case expectation that the Fed will not cut rates proactively in the face of rising tariff-driven inflation.

The textbook impact of the world’s largest goods importer, the US, imposing an ultra-high tariff on the world’s largest goods exporter, China, is for global goods prices to FALL. Thereby, while Trump’s tariffs will be inflationary for the US they will be DEFLATIONARY for Europe. We go through the implications for rates, bonds, stocks, and FX. Plus: tactically underweight global utilities (JXI); and tactically buy TGT.

While the United States and China may aim for full decoupling, all they can afford now is some form of trade skirmishes. Increasing economic pressure will eventually force both Washington and Beijing to pursue more proactive negotiations. Until then, internal economic and financial strains are likely necessary to break the stalemate and resume dialogue between the two nations.

Even after policymakers retract their prejudicial actions, financial markets might continue selling off. We compare the current tariff shock with two past episodes when policy reversals did not produce market turnarounds: (1) the RMB devaluation in August 2015, and (2) the US Congress's initial rejection of the TARP bank bailout program in 2008. In addition, we show numerous technical indicators illustrating at which levels the potential bottom in various equity markets could be.

Tariffs may trigger the recession, but the economy was already vulnerable from unsustainable growth and inflated expectations. Private Equity is most exposed, though this situation neither emerged suddenly nor will it unfold overnight. Our recommendations remain largely unchanged as market conditions increasingly align with our outlook.