Newell Palmer: Monthly Economic Notes – June 2019
Trade wars, whether between US and China or US and Mexico, can be unsettling to markets. However, taking a step back, the fundamentals are still positive with good economic growth in the US and China, and low unemployment in the US. The current economic expansion is the longest since the second world war, but economic cycles do not end because of old age. The two factors to watch that may indicate an end of the economic cycle are a period of synchronised monetary tightening and a major misallocation of capital, but these signals are not flashing amber. Previous cycles ended in 2008 and 2000 with a synchronous tightening of monetary policy by major central banks. At this time, there is no synchronous monetary tightening and some central banks are either loosening policy or indicating that they may loosen policy. Whilst there is increasing leverage in the US corporate sector and Chinese State-Owned Enterprises, these levels are not as high as previous cycles.