Banks brace for recession, expect earlier Fed cuts as tariffs continue to shock markets

Goldman Sachs raised the probability of recession in the US economy to 45%, up from the 35% it penciled in just last week, Reuters reports. The second adjustment came after the sharper-than-expected tariffs implemented by US President Donald Trump triggered a major sell-off in global markets.

The outlook is turning bearish across the board: Other major investment banks have also revised their recession forecasts in the wake of the tariff-induced market turmoil, the newswire reported separately. JPMorgan now sees a 60% chance of a US recession by year-end. HSBC isn’t far behind, putting the odds at 40%, while S&P Global pegs the probability at 30-35%.

Federal Reserve Chair Jerome Powell had added to the panic earlier, labeling Trump’s tariffs as “larger than expected” and warning it could put the brakes on growth. He also flagged a “highly uncertain outlook,” noting the risk of both higher unemployment and price pressures.

Rate cuts to come sooner? Goldman now expects the Fed’s three interest rate cuts — by 25 basis points each — to start in June, revised from July. JP Morgan seconds the notion, while expecting the benchmark rate to fall to 3% by January of the next year.

Traders went all in on rate cuts in yesterday’s session, expecting the Fed to cut rates by a total of 116 basis points this year over four of the five remaining meetings, Reuters reported, citing data compiled by LSEG. The wager on “emergency” meetings — where rates are going to be cut further — remains far-fetched for now, with the unusual measures last used during the pandemic. Still, it remains to be seen how far the impact of the trade war on inflation will be, as stagflation is currently the best-case scenario for the US economy, Bill Dudley, former New York Fed president, told Bloomberg.

MARKETS THIS MORNING-

Asian markets are opening higher today, recouping some of yesterday’s steep losses. Japan’s Nikkei is up 6.2%, while Hong Kong’s Hang Seng is inching up 2.2%, and Kospi’s up 1.6%. Wall Street futures also indicate a slight recovery on market open.

THE CLOSING BELL: TADAWUL-

The TASI rose 1.1% yesterday on turnover of SAR 10.6 bn. The index is down 7.0% YTD.

In the green: NCLE (+8.8%), Mutakamela (+7.2%) and Acwa Power (+6.8%).

In the red: Batic (-9.8%), AlAkaria (-6.0%) and MESC (-5.7%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.01% yesterday on turnover of SAR 46.4 mn. The index is down 9.0% YTD.

In the green: HKC (+9.6%), Horizon Education (+9.3%) and Alqemam (+8.1%).

In the red: Jana (-9.1%), Tam Development (-8.5%) and Ghida Alsultan (-6.8%).

CORPORATE ACTIONS-

Jana Medical is now subject to Tadawul rules for firms with significant losses after reporting accumulated losses of SAR 13.0 mn in FY 2024, representing 40.6% of its capital and exceeding the 20% limit established by market regulation, it said in a disclosure to Tadawul. The losses stemmed from higher credit loss provisions, legal cases provisions, and financing costs.

Looking forward: The company now plans to raise sales volume, expand medical device agencies, reduce expenses, assess financial position and liquidity, and implement the Odoo enterprise resource planning system to raise operational efficiency.

The Company for Cooperative Ins.’s (Tawuniya) BoD recommended distributing SAR 225 mn in dividends for FY 2024 at SAR 1.5 a piece, it said in a disclosure to Tadawul. The distribution date is yet to be announced.

ALSO- The executive board at Mohammed Hadi Al Rasheed and Partners recommended the distribution of SAR 24 mn in dividends at SAR 2 apiece for FY 2024, it said in a disclosure to Tadawul. The distribution date is yet to be announced.

AND- FAD International Company’s board endorsed distributing SAR 6 mn in dividends for FY 2024 at SAR 5 apiece, according to a disclosure to Tadawul. The distribution date is yet to be disclosed.