US stock futures flounder amid tech weakness, Fed caution
Investing.com - The full impact of sweeping U.S. tariffs on the country’s economy has yet to be felt, but recent easing in financial conditions should provide some support for demand, according to analysts at BCA Research.
Economists have warned that U.S. President Donald Trump’s aggressive tariffs could drive up inflationary pressures and weigh on broader economic activity.
However, reports this week have painted a picture of an American economy that seems to be on solid footing despite some observers expecting to see a slowdown in the coming months.
On Thursday, retail sales figures were stronger than anticipated, while weekly jobless claims came in below forecasts. Inflation also stayed broadly in line with expectations in June, although the tariffs seem to be pushing the prices of some goods higher.
A key August 1 deadline for Trump’s elevated "reciprocal" tariffs to take effect looms large, with the White House suggesting that some new agreements with individual countries could be coming before that date. So far, preliminary trade deals have been reached with a handful of nations, including the United Kingdom (TADAWUL:4280), China, Vietnam, and Indonesia.
Others, including major U.S. trading partners like the European Union, have yet to reach a pact to avoid Trump’s heightened levies.
Writing in a note to clients, the BCA analysts argued that "where the U.S. economy goes from here will depend on the balance of forces affecting it."
"On the one hand, the full impact of the trade war has yet to be felt," the analyst said.
"On the other hand, the easing in financial conditions since mid-April should bolster demand, as should the prospect of fiscal stimulus not just in the U.S., but also in Germany and China."
For the U.S. economy to avoid either "overheating or further cooling," these forces would need to largely offset each other, they added.
While the strategists do not anticipate that this "Goldilocks scenario" will transpire, they noted that it "cannot be ruled out." As a result, they recommend investors have "only a modest underweight to stocks."
"We continue to wait until we see the ’whites of the recession’s eyes’ before turning fully defensive," the BCA analysts wrote.