Japanese equities outran their global peers in September in an exaggerated response to a temporary thaw in U.S.-China trade tensions. We maintain our underweight on Japanese equities, as they are still particularly vulnerable to a growth slowdown in China and we see no sustained letup in the protectionist push.
Earnings will be key for further U.S. equity gains. Third-quarter earnings season may offer some limited support to U.S. stocks in the near term, as the macro backdrop worsens and a growth rebound is months away.
Major central banks have eased monetary policy in recent months, delivering on the anticipated policy pivot that informs one of our key investment themes. We expect policy easing to help sustain the economic expansion, and already see easier financial conditions.
Elga explains why we see a growth pickup looming on the horizon. Hint: Watch the transmission of financial conditions.
A rebound in bond yields has led to a shakeup in equity market factor returns. U.S. value has recovered and momentum stumbled. Can this factor rotation last? We think it is too early to call for a value revival – and prefer defensive equity factors such as minimum volatility and quality as growth slows.
Markets breathed a sigh of relief last week on signs of easing U.S.-China trade tensions. We see ongoing policy support, the absence of obvious financial system vulnerabilities and resilient consumer spending helping extend the U.S. economic expansion.
We identified geopolitical risk as the key market driver in the second half of 2019 in our midyear investment outlook. The UK is the latest example, where deep divisions over a potential Brexit have unsettled the political landscape, paving the way for a broader set of potential outcomes.
U.S.-China trade tensions have escalated, echoing our midyear outlook protectionist push theme, and bond yields have fallen to new lows. We do not see a near-term recession, with no clear signs of financial vulnerabilities and central banks helping extend the cycle.
The “risk-off” mood in global markets deepened last week – as global government bond yields plunged to historical lows and the inversion of part of the U.S. Treasury curve sparked recession fears. Perceived safe-haven assets such as gold rallied. We still see limited near-term recession risks as central banks’ dovish pivot helps stretch the economic cycle, yet caution that trade and geopolitical tensions pose downside risks.
The recent escalation in U.S.-China tensions reinforces our view that trade and geopolitical frictions have become the key driver of the global economy and markets. We stress the importance of portfolio resilience in this environment, yet view the decisively dovish shift by global central banks as helping extend the global expansion.
The Fed confirmed global central banks’ dovish pivot last week, as it cut rates for the first time since 2008, albeit by less than some market participants had foreseen. Its moderate easing stance was in line with our expectations—and we see easier global monetary policies stretching the current cycle and supporting risk assets.
We have closed our underweight in European equities and credit, and upgraded government bonds to overweight. The impetus? We see the European Central Bank (ECB) delivering fresh stimulus over coming months, against a backdrop of a stabilizing growth outlook and persistent inflation undershoots.