NOMURA ON U.S TARIFFS
In the US, a more front-loaded inflation shock (3m annualized core PCE rising above 6% in Q3) and a growth slowdown to a near-recession baseline, with the Fed holding off cutting rates until December. Non-linear events, tipping the economy into recession, is a clear risk to our baseline.
By contrast, in Europe and Asia, the negative growth shock outweighs the inflation shock, allowing larger monetary and fiscal stimulus. We now expect the ECB to cut in April. Asia will be hit particularly hard, resulting in disinflation or even deflation in some countries.
Bucking the global trend, we still expect the Bank of Japan to hike rates in July, but admittedly it has become a closer call. We also continue to believe that India is the least exposed to the US tariff shock, and could benefit from the ongoing global supply-chain shifts.
Our top FX expression is to be long JPY against several crosses, while we also have high-conviction views on short CNH versus the basket and long 5Y IGBs.
