Trade war not the only headwind for risky assets

Worries about a global trade war have already weighed on the prices of many risky assets, particularly those in Asia. And there is a growing risk that the US implements even more protectionist measures than it has threatened so far. Even if this does not happen, though, there are reasons to be pessimistic about the outlook. Regardless of US trade policy, we forecast that China’s economy will lose steam over the rest of this year, and that the US economy will slow sharply in 2019. This is reflected in our forecasts that equities will fall a long way and that credit spreads will rise significantly around the world between now and the end of next year.