White House dismisses U.S. recession fears- however Fed and IMF sound alarm over tariffs

European stock markets soared yesterday as investors cheered a partial tariff climbdown and a top White House advisor dismissed talk of recession in the US.

On another day of trade war turmoil, the FTSE 100 gained 2.1 per cent in London, the Dax gained 2.9 per cent in Frankfurt and the Cac 40 gained 2.4 per cent in Paris following steady gains in Asia.

Wall Street also edged higher in early trading after Donald Trump excluded smartphones, computers and other electronic devices from the steepest ‘reciprocal’ tariffs – such as the 145 per cent levy on imports from China – though they will still face separate semiconductor levies.

‘Markets are taking whatever sign of relief they can,’ said Mitul Kotecha, head of emerging markets macro strategy at Barclays.

The Footsie has gained nearly 6 per cent in the past three sessions but remains down more than 5 per cent since the start of April amid fears that a trade war between the US and China will tip the world into recession.

Trump last night said he plans to impose new tariffs on pharmaceutical companies in the ‘not-too-distant future’. 

Backing down: Wall Street edged higher after Donald Trump (pictured) excluded smartphones, computers and other electronic devices from the steepest tariffs

It came as the International Monetary Fund warned that geopolitical risks were at the highest level for ‘several decades’ with tit-for-tat tariffs posing a major threat to global financial stability.

And a top Federal Reserve official said the central bank may need to cut interest rates sharply to prop up the economy if Trump carries out all his tariff threats.

Warning growth in the US could ‘slow to a crawl’, Christopher Waller said: ‘If the slowdown is significant and even threatens a recession, then I would expect to favour cutting [rates] sooner, and to a greater extent than I had previously thought.’ 

JP Morgan analysts put the chances of recession at 60 per cent while Goldman Sachs rates it at 45 per cent. 

However, Kevin Hassett, the White House national economic council director, brushed off the warnings from Wall Street that a downturn is on the way.

Asked whether he was expecting a recession this year, Hassett said ‘100 per cent not – 100 per cent not’ and pointed to ‘very strong jobs numbers’, adding: ‘Everything’s through the roof.’

Luca Paolini, chief strategist at Pictet Asset Management, said: ‘Trump is clearly backtracking. Markets smell he is desperate to find a way out of here, but the damage cannot be completely undone.’

While stock markets in Europe made healthy gains, fears over the outlook for the US sent the dollar tumbling to a fresh six-month low.

At the same time, oil ‘cartel’ Opec cut its forecasts for oil consumption this year and next as the tariff onslaught hits global demand.

Bruce Kasman, head of economics at JP Morgan, said: ‘The post-Liberation Day back-pedalling has led some to breathe a sigh of relief. Not us.

‘You cannot stop trade between the world’s two largest economies and not expect damage everywhere. We maintain our call for a 60 per cent likelihood of a US/global recession.’