On January 13, the Canadian research firm BCA Research speculated on four potential black swan events in a recent report to its clients, with the firm's strategist writing: "We do not expect any of these things to happen, but they could happen, and in all cases, their impact on the macroeconomy and finance would be enormous." BCA is one of the most bearish institutions on Wall Street, having repeatedly reiterated its recession forecast in its previous reports.
1. Trump reaches a nuclear deal with Iran
Trump may reach a new nuclear deal with Iran during his second term, after withdrawing from the agreement in his first term. Such a deal could lead to a drop in oil prices, easing global oil supply concerns, and cause the US dollar to appreciate, with the DXY index rising. However, BCA still estimates a 75% probability of a US-Iran military conflict by 2025.
2. Trump may abandon NATO
Trump had considered withdrawing the US from NATO during his first term. BCA speculates that in Trump's second term, if NATO member countries are attacked, he may refuse to take action or make "damaging remarks to the alliance's credibility." The US's commitment to NATO may waver, which could have a "negative impact" on Eastern European currencies and assets, particularly causing the euro to fall and the "risk premium on Eastern European currencies and assets to rise permanently," implying higher interest rates.
3. The US may use military or economic force against Mexico
The US may use military force along the US-Mexico border to crack down on illegal activities such as drug trafficking. BCA warns that this move could trigger an "unexpected crisis" in the US, leading to economic tensions between the two countries, and considering the US's dependence on Mexico, could lead to "significantly higher inflation." The strategist added, "The bad news is that serious tariffs may actually be implemented for some time, and the security situation between the two countries may deteriorate."
4. Other countries coordinate currency intervention to counter the US
BCA states that other countries may agree to organize foreign exchange intervention in response to Trump's tariff threats, leading to a sharp depreciation of the US dollar. "The Trump team is more willing to use political pressure tactics, by allowing the US dollar to appreciate or adopting policies that increase US imports, to make other countries pay the cost of America's macroeconomic adjustment. This will have a huge negative impact on the US dollar this year."
