JPM upgrades global growth forecast, sees lower recession risk

On Wednesday, JPMorgan revised its economic forecasts, indicating a more optimistic outlook for the global economy. The firm no longer anticipates a recession and has upgraded growth forecasts for much of the world. This change in stance follows significant reductions in tariff rates between the United States and China, which have lessened trade tensions and the associated risks to economic growth. Market sentiment appears to support this view, with the VXX volatility index showing a strong 13.7% year-to-date return, according to InvestingPro data.

The Trump Administration’s recent shift away from its stringent position against China has been a key factor in this updated forecast. The US has lowered its effective tariff rate on Chinese imports from around 145% to 13.4%, a notable decrease of nearly 10 percentage points. Concurrently, China has reduced its tariff on US imports to 28%. These adjustments have prompted JPMorgan to decrease the probability of a US recession from 60% to 40% and to retract its previous recession prediction for the country. Market volatility metrics from InvestingPro show average daily trading volume of 8.27M USD, suggesting active market positioning around these developments.

Despite the positive developments, JPMorgan cautions that the trade war is not over and could escalate again, potentially leading to an increase in tariffs from their current levels. The July 8 deadline looms as the end of a 90-day reprieve from higher tariffs, and the risk of failed negotiations or retaliatory tariffs remains. Furthermore, the impact of trade policy uncertainty on sentiment and the economy is significant, with the IMF estimating that it roughly doubles the direct tariff shock to US GDP. Recent InvestingPro data shows the VXX trading at $52.86, with a 16.38% return over the past year, reflecting ongoing market uncertainty.

The lowered tariffs and reduced risk of recession have had an uplifting effect on risk markets and are expected to lead to a short-term boost in household and business sentiment. However, JPMorgan warns that the recovery from the recession-like conditions experienced in April is likely to be incomplete, and elevated trade policy uncertainty will continue to pose a challenge to growth. Nevertheless, factors such as lower oil prices and increased US fiscal stimulus are anticipated to help mitigate these downside risks. Market data from InvestingPro shows a 9.32% six-month return for volatility indicators, suggesting markets are pricing in continued uncertainty despite the improved outlook.

In other recent news, Truist Securities has made notable adjustments to its investment strategy by downgrading equities from a "neutral" rating to "less attractive" and increasing the appeal of holding cash. This decision follows a market rebound and suggests a more cautious approach, with U.S. large caps being downgraded from "most attractive" to "attractive," and U.S. mid caps moving from "attractive" to "neutral." Meanwhile, the Cboe Volatility Index, often seen as a measure of investor anxiety, has surged to an eight-month high, reflecting concerns over U.S. tariff policies and ongoing stock selloffs. The index reached 60.13, a level not seen since August 5, indicating heightened market volatility. Additionally, Citi analysts noted a decline in the University of Michigan Sentiment index, which fell to 50.8 from 52.2, potentially signaling consumer caution. This sentiment index is closely watched as it may influence future consumer spending, although its direct impact remains uncertain. These developments come amid broader economic challenges, including trade policy changes that could further affect consumer confidence.

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