Weekly Research Briefing: Grab Your Passport

Trump was asked about recession risks in an interview with Fox News' "Sunday Morning Futures."

"I hate to predict things like that. There is a period of transition, because what we're doing is very big, we're bringing wealth back to America, that's a big thing," Trump said. "There are always periods of ... it takes a little time, it takes a little time, but I think it should be great for us, I mean I think it should be great."

"The market and the economy have become hooked, become addicted, to excessive government spending, and there’s going to be a detox period...Could we be seeing this economy that we inherited starting to roll a bit? Sure. Look, there’s going to be a natural adjustment as we move away from public spending." — US Treasury Secretary Scott Bessent

As for the presumption that there is a “Trump put” underneath the stock market, she adds that Bessent’s comment at Thursday’s ECNY presentation “that ‘Wall Street’s done great, Wall Street can continue doing well, but this administration is about Main Street’ indicated to us that keeping equity investors happy may not be the administration’s top priority right now.”

@KevRGordon: Fed Beige Book mentions of "uncertainty" have spiked to an all-time high @bespokeinvest

“There were three changes in 24 hours affecting us as a North American auto supplier, and that’s a little bit disconcerting,” said Jeff Aznavorian, president of Clips & Clamps Industries, an engineering group based in Plymouth, Michigan. “We can’t guess what or how or who at the moment. It’s like a whipsaw.”...

Cody Lusk, chief executive of the American International Automobile Dealers Association, which lobbies for US dealers who sell international nameplates, dubbed the tariff uncertainty a “calamity” for his sector.

“We’re a cash flow business, and anything that disrupts that is going to disrupt their ability to pay their employees, grow their businesses, pay their taxes,” he said. “Just a chain reaction of events.”

President Donald Trump has started his second term in office with momentous plans to change US trade policy to achieve various economic and nontrade related aims. Below is a timeline that tracks the development of the most notable trade actions by the United States and other countries with links to the latest available data and PIIE analysis. Entries will primarily focus on official government announcements and actions.

"One of the issues around the uncertainty of the tariffs is it’s very hard to make an investment decision even on something like a restart without knowing how long the tariffs will last. More broadly, the administration has asked us, are we likely to reshore aluminum production in the United States? We make decisions around aluminum production that are a horizon of 20 to 40 years. We would not be making an investment in the United States based on a tariff structure that could be in place for a much shorter period of time." — Alcoa CEO William Oplinger

‬‪"If we tear the world apart—I call it the economic battlefield—in trade, pricing, you know, us against Europe, us against China—yeah, we're going to have an issue. So, you know, America First is fine. America alone—if we end up alone because, you know, we're tearing the world asunder—we will have made a mistake." — JPMorgan CEO Jamie Dimon

Leonardo SpA, the Italian defense and aerospace company, has replaced Bank of America Corp. with Deutsche Bank AG to advise on talks to forge a new European space and satellite champion, according to people familiar with the matter.

Rome-based Leonardo switched to the German bank in recent weeks, after initially hiring the US firm, said the people, asking not to be identified because discussions are confidential. One reason for the pivot was business-related around a potential conflict related to another client, some of the people said.

The move to a leading European investment bank may also signal a greater desire by continental companies to pare back dependence on Wall Street at a time when trans-Atlantic political alliances show signs of fraying. Several European bankers in the region, who asked not to be identified because of client confidentiality, said they’ve noticed growing interest from local companies seeking to do deals and raise funds.

That shift coincides with political pressure to work more closely with European financial firms, part of broader regional realignment that’s gained pace since President Donald Trump returned to the White House.

A YouGov poll published March 4 shows positive feelings toward the US have fallen by between six and 28 points since Trump was elected. The smallest decline (from 48 to 42) is in Italy. The biggest (from 48 to 20) is in Denmark, where, unsurprisingly, people are annoyed by his intention to annex part of their territory. There is currently nowhere in Europe where more than half the population has a positive feeling about the US. These numbers are likely to worsen significantly as the mass deportation of migrants starts and when the tariffs take an increasing toll on the global economy.

Trump has delayed tariffs on goods covered by the North American trade agreement known as USMCA. Yet that covers less than 40% of goods shipped from Canada to the US, according to historic trade data. Importers can rush to comply with those rules but massive disruption is afoot.

So the first wave of retaliatory tariffs from Canada is staying in place, liquor-store shelves remain stripped of US wines and bourbon, and provinces haven’t backed off their anything-but-America rules for government contracts.

And Canadians are big mad. About 30% say they now see the US as an “enemy” nation, according to a Leger poll released this week. They say they’re shunning Amazon purchases, scrapping US travel plans and diligently buying non-US goods at the supermarket. Over time, these small, symbolic actions could become permanent shifts in how 41 million people spend their money.

“We will never again put ourselves in the position of being so dependent on the United States,” British Columbia Premier David Eby said Thursday, speaking within an hour of Trump’s latest tariff pause. He and his fellow provincial and territorial leaders say they’re ready to tear down barriers to trade within Canada itself.

“We just can't be in the same position again,” he said. “The relationship has been changed forever.”

The Trump administration's recent attacks on its northern neighbor have been met with confusion, frustration and anger by many Canadians, some of whom are now abandoning their trips south and boycotting travel to the U.S. in protest.

Tourism industry leaders say that could pose a major threat to the U.S. travel sector, which relies heavily on Canadian visitors. According to the U.S. Travel Association, Canadians are the largest group of foreign visitors to the U.S. annually and accounted for $20.5 billion in spending last year alone.

Florida, California, Nevada, New York and Texas are the top U.S. states for Canadian tourists...

Prather of the National Tour Association said cancellations could mean "millions" in lost revenue to tour companies, hotels, restaurants and more. The U.S. Travel Association estimated that even a 10% reduction in Canadian tourism to the U.S. would spell a $2.1 billion drop in spending and a loss of 14,000 American jobs.

An expanded trade war ensnaring Canada, Mexico, China and even Europe, according to the research firm Tourism Economics, could result in a $22 billion loss in tourism revenue from international visitors.

Top 3 countries for tourist visits to the US:
1) Canada 31% in 2023
2) Mexico 22% in 2023
3) UK 6% in 2023

"Sales trends began softening later in January and into February. We believe a combination of unseasonable weather and heightened volatility in the macroeconomic and geopolitical environments has negatively impacted customer traffic." — Ross Stores CFO Adam Orvos

"During February, we saw record performance around Valentine's Day. However, our topline performance for the month was soft, as uncharacteristically cold weather across the U.S. affected apparel sales, and declining consumer confidence impacted our discretionary assortment overall." — Target CFO Brian Cornell

@LizAnnSonders: Year/year change in revolving credit dipped into negative territory in January ... much deeper plunge typically associated with recessions

A slowing economy and the ongoing impacts of inflation have made it harder for many consumers to stay current on their bills. Auto loans have been a particular pain point, with higher car prices and elevated borrowing costs driving a surge in repossessions.

The Federal Reserve Bank of New York recently reported that the share of auto loans among all borrowers that transitioned into serious delinquency — defined as 90 days or more past due — rose to 3% in the fourth quarter, the highest level since 2010...

“The lower income level has been really affected, and we expect that to continue to be the case this year,” said Mike Girard, senior director for asset-backed securities in North America for Fitch. “There’s still the continued impact from higher inflation and interest rates.”

We have downgraded our 2025 US GDP growth forecast from 2.4% at the start of the year to 1.7% now (both on a Q4/Q4 basis). This is our first below-consensus forecast in 2½ years... the reason for the downgrade is that our trade policy assumptions have become considerably more adverse and the administration is managing expectations towards tariff-induced near-term economic weakness. We now see the average US tariff rate rising by 10pp this year, twice our previous forecast and about five times the increase seen in the first Trump administration. While President Trump ended up softening the 25% tariff on Canada and Mexico soon after implementation, we expect the next few months to bring a critical goods tariff, a global auto tariff, and a “reciprocal” tariff. The reciprocal tariff matters most, not because other countries impose much higher tariffs on the US than vice versa—with a few exceptions such as India they don’t—but because the administration views e.g. Europe’s VAT of 20% as equivalent to a tariff (even though it is imposed equally on imported and domestically produced goods).

MORGAN STANLEY CUTS US GDP FORECAST TO 1.5% IN 2025, 1.2% IN 2026

"Our forecast changes pull forward the anticipated effects of restrictive trade and immigration policies. If our narrative entering the year was "slower growth, stickier 🇺🇸 inflation" then we now think "slower growth, firmer inflation." We mark down growth in real GDP to 1.5% in 2025 (Q4/Q4) and 1.2% in 2026, down four-tenths and one-tenth. Earlier and broader tariffs should translate into softer growth this year, whereas we previously assumed it would weigh on growth mainly in 2026."

"However, we do not expect this softer growth profile to translate into a weaker labor market this year since an abrupt deceleration in immigration should mean slow growth in the labor force. If so, then any slowdown in employment gains need not push the unemployment rate higher. We continue to think the unemployment rate finishes the year at 4.1%, only a tenth above its current reading. Taken together, greater intensity of tariffs and a still-tight labor market lead us to mark higher our outlook for inflation and we now look for headline and core PCE inflation of 2.5% and 2.7% in December, up from 2.3% and 2.5% previously. "

@wallstengine: JPM Desk: "Is a relief rally coming? Yes. After the worst weekly performance since September 2024, we think a rebound is more likely than another immediate decline. But would you buy or fade a relief rally? Fade it. The economy is slowing, and the trade war remains an unambiguous negative for both the market and the economy."

“A CEO called me and said: ‘I’m not sure I want to do a major deal and then the market goes down 1000 points the next day’. Why not wait and get some stability?,” said Scott Barshay, who leads the M&A practice at Paul, Weiss, on an opening panel discussion.

The medium-term growth outlook in the Euro area has improved on the back of the potentially dramatic change in German fiscal policy under incoming Chancellor Friedrich Merz. The preliminary agreement between Merz’s CDU/CSU and its smaller coalition partner SPD entails 1) suspension of the debt brake for defense spending above 1% of GDP, 2) a special infrastructure fund of EUR500bn or 10% of GDP, and 3) a small but politically astute loosening of the debt brake constraint on state and local governments. Assuming that the incoming coalition can persuade the Greens to pass the package without too many changes before the new Bundestag convenes, and that other Euro area economies also spend modestly more on defense, growth in each of the next 2-3 years should receive a boost averaging ½pp in Germany and ¼pp in the Euro area, where we now expect 1.6% in 2027.

@neilksethi: #Germany gets some positive news in industrial production rising 2% m/m vs the 1.5% exp'd mainly on increased auto production. The result is a relief after factory orders slumped (but that statistic bodes less favorably for future months).

Caution flags also were raised by exports falling -2.5% vs an expected +0.5% rise.

“The short-run outlook remains dominated by the risk of large US tariffs on European exports, with a surge in trade uncertainty weighing on economic activity even before any new tariffs have been implemented. In the medium run, however, government plans for a massive jump in defense and infrastructure spending could give the troubled industrial sector a substantial boost.” —Martin Ademmer, BBG economist.

HSBC DOWNGRADES U.S. STOCKS TO NEUTRAL AND UPGRADES EUROPE (EX-UK) TO OVERWEIGHT. They cite the U.S. downgrade due to market factors pricing in a "mini earnings recession" in early 2025, while the European upgrade is driven by game-changing fiscal stimulus in the Eurozone, especially in Germany, along with shifting global trade dynamics.

The shift in the world order has inspired several Wall Street strategists, including Deutsche Bank AG’s Maximilian Uleer, to use the expression “Make Europe Great Again” — a play on Trump’s campaign slogan — to suggest a new era of outperformance for the region’s assets.

EPFR Global data show about $12 billion flowed into European equity funds in the four weeks through March 5 — a pace not seen in almost a decade, according to a note from Bank of America Corp. Meanwhile, emerging markets saw the largest weekly inflows in three months at $2.4 billion.

“Price action suggests investors are funding European and Chinese stocks at the cost of the US,” said Mark Taylor, director of sales trading at Panmure Liberum...

Barclays Plc strategist Emmanuel Cau said the gains in Europe so far constituted more of a relief rally rather than signifying a return of long-term capital. But the easing fiscal stance in Germany and the broader European Union has the potential to attract more strategic flows.

“Eventually this could lift growth in Europe above trend, leading investors to strategically rebalance their allocations and drive valuations above average,” Cau said. “This is something not many are positioned for yet, as US exceptionalism has been the playbook for the last two decades.”

Last week, American stocks suffered their worst weekly losses relative to global stocks since 2020. Most instances of the rest of the world massively outperforming US equities occur when they’re either rising much more or falling much less than the S&P 500. But this episode was different: last week marked the first time since 1988 where the S&P 500 fell at least 3% while global equities ex-US rose at least 2.5%.

“In an amazing reversal, we went from TINA (there is no alternative to the US), China is uninvestable, and Europe is dead… to a market that is fleeing anything made in the USA and looking for safer places to park cash,” Brent Donnelly, president of Spectra Markets, wrote. “The new regime brings a weaker USD, stronger EUR, and massive outperformance of global equities vs. the US as the years-long theme of American Exceptionalism has turned on a dime to ‘anything but the USA.’”

It was a week that summarized the year, to date: as of March 7, this is the worst start to a year for the S&P 500 compared to the MSCI ACWI ex-US Index on record, going back to 1988.

"It's very clear to us, having spent most of our lives in the auto industry, the China electric vehicle companies are winning that battle versus the Western OEMs. It just appears to be that way....We -- I would say this maybe not to sound unpatriotic but I would say that the Chinese auto OEMs have pretty much today won the electric vehicle battle. The challenge is growth for those companies is going to be spurred by exports to the Western markets. I don't know if we will ever see a BYD car for sale here in America. But you can buy them in Europe and South America, Southeast Asia. So their growth will be led by exports." — NXP Semiconductors NV VP Investor Relations Jeff Palmer

Schools in Beijing will introduce artificial intelligence courses to primary and secondary students to strengthen China’s goal to dominate the sector.

From the coming fall semester, which starts Sept. 1, schools in China’s capital will offer at least eight hours of AI classes per academic year, the Beijing Municipal Education Commission said in a statement on its website. Schools can run them as standalone courses or integrate them with existing curriculum, such as information technology and science, it said...

The educational plan follows a pledge by the government at the National People’s Congress to support the extensive application of large-scale AI models and development of new-generation intelligent terminals and manufacturing equipment.

@TheTranscript_: $BAC with a chart on who makes the humanoid robot: