US recession : what risk and what consequences ?

The strength of US GDP growth in Q1-19 (+ 3.1% QoQ) hides a much more contrasted reality, as indicated by the contribution of household consumption to growth and especially the latest surveys that witness a slowdown across the Atlantic. What if this slowdown of the US economy were to bite rather more and turn into a real recession? The ballooning in the debt of corporates, notably of BBB rated bond issuers; and a renewed aggressiveness in financing structures for High Yield (HY) and Leveraged Buyouts (LBOs) could indeed have a snowball effect in case of a shock of confidence… already undermined by the hints of trade war. We examine here the factors that could see a recession take hold in the United States with a what-if scenario and attempt to quantify it, first on the US economy, then through its knock-on effects on oil, the European economy and financial markets (interst rates, Forex, equities, credit and asset allocation).