Trump’s trade war, oil, US dollar: why a recession may be in the offing

PUBLISHED : Monday, 09 July, 2018, 10:00pm
UPDATED : Monday, 09 July, 2018, 10:00pm

A worsening trade environment, with a hawkish US Federal Reserve, and slowing growth in parts of the world are all pointing to a reversal of fortunes.

The biggest threat to asset prices are undoubtedly the twin punches of rising interest rates and larger budget deficits in America that will tighten US dollar liquidity, which in turn will decrease prices of assets used to years of easy money and almost non-existent interest rates. These are also the causes of the recent strength in the US dollar. And now President Donald Trump has chosen exactly the wrong moment to fight his trade battles, hurting economies all over the world, including his own.

Coupled with an uncertain outlook for oil supply and prices, the prospects for how these factors will play out together looks rather grim.

Oil’s up, dollar’s up, interest rates are up. Asia’s heading down?

The current economic expansion has already lasted nine years. Maybe a recession is already long overdue. Considering this, businesses should raise liquidity and pay down debts, while individuals should focus on protecting the downside of their investments. This may mean taking profits off the table and bracing for more volatility. It may also mean, for the more risk-tolerant investors, having a cash pile ready for better investment opportunities.

Akshay Parekh, Tsim Sha Tsui