Q3 Macro Outlook: Less Chaos, More Clarity

In the upcoming quarter, the economic landscape is expected to stabilize following the tumultuous events of Q2, particularly influenced by the policies of the Trump administration. The article outlines key factors that will shape the market and economic sentiment moving forward.

Key Issues Impacting the Market

• US-China Relations: The ongoing trade dynamics between the US and China remain critical. China’s control over rare earth metals gives it significant leverage, especially as the US seeks to establish alternative supply chains. The recent resumption of rare earth exports from China has eased some tensions, but potential restrictions on these exports could pose challenges.
• US Tariff Policies: President Trump is expected to introduce new tariffs targeting countries perceived as negotiating in bad faith. The upcoming trade deals with Japan and Europe will be closely monitored, especially in light of Japan's political climate.
• Geopolitical Tensions: The conflict between Iran and Israel is escalating, which could impact oil markets and inflation. Central banks may overlook temporary spikes in energy prices if they threaten overall economic growth.
• Recession Risks: The article suggests that the US may face a mild recession in the latter half of the year, driven by the effects of tariffs and a cooling housing market. The Federal Reserve's high policy rates could exacerbate these risks.

Market Predictions

The outlook for various asset classes is as follows:

• US Dollar: Expected to remain weak as global capital flows shift away from US markets.
• Precious Metals: Gold and silver are anticipated to perform well, driven by geopolitical risks and inflation concerns. The potential for gold prices to reach USD 4,000 within the next year is highlighted.
• Equities: US equities may underperform relative to global markets as the trend of reallocating investments away from US stocks continues. However, aggressive rate cuts by the Fed could lead to short-term rallies.

Conclusion

The article emphasizes the importance of monitoring geopolitical developments and trade negotiations, as these factors will significantly influence market dynamics in Q3. The potential for a recession, coupled with the evolving landscape of US-China relations, presents both risks and opportunities for investors.