The US stock market looks set to open in positive territory on Wednesday as Dow futures pump 100 points higher in early trading.
Despite the bounce, experts are increasingly nervous about flared tensions between Trump and China. Lawrence Summer, former US Treasury Secretary and White House advisor, said the threat of recession has magnified since May’s trade deal breakdown.
“[Chance of recession is] “much higher than it needs to be and much higher than it was two months ago” – via Bloomberg TV.
Dow futures pump 100 points
At 6.23 am ET, Dow Jones Industrial Average (DJIA) futures popped 100 points higher (0.39 percent), implying a strong open on Wall Street on Wednesday.
It comes off the back of a middling Asian session in which the Shanghai Composite and Japan’s Nikkei index both trickled lower. Stocks pumped higher in Europe, with Germany’s DAX up 1.3 percent.
Recession fears grip the stock market
As CCN reported, the Treasury’s own recession indicator is now at its sharpest level since 2007, just months before the financial crisis. The yield curve inversion has historically predicted every major downturn in the previous 50 years.
The latest recession risk comes as Trump and China ramp up threats over trade. The US president said he would hit China with new 10% tariffs on a further $300 billion products. In retaliation, China let its yuan currency slide to the lowest level in a decade. As Lawrence told Bloomberg:
“You can often play with fire and not have anything untoward happen, but if you do it too much you eventually get burned.”
Dow would soar if Trump eased off
Analysts widely agree that escalated trade tensions are choking the Dow and S&P 500 by throwing uncertainty into the markets. Economist Ryan Sweet at Moody’s said:
“If Trump backs off, the economy will take off again.”
Morgan Stanley takes a similar position, saying the ongoing trade war could tilt the world economy into recession. If Trump ramps up tariffs to 25 percent, Goldman Sachs sees a strong chance of economic downturn in the next year.