Newell Palmer: Monthly Economic Notes – July 2019
The consensus is that we are currently in a late cycle environment with risks elevated, but also with the potential for markets to further rally. The risks include the inverted yield curve signalling a potential recession in the next two years, trade war uncertainty and weakness in global growth. However, with major central banks across the world currently easing, more China stimulus and the potential of a US-China trade deal, these factors could trigger a rally in markets. There is a risk of a “melt-up”, i.e. strong rally, in equity markets as central banks continue to reduce interest rates. But the economic background is weakening with lower growth. Thus, caution is warranted at this stage of the cycle, but to recognise that growth assets can continue to perform in the short term.Monthly-Notes-July-2019.pdf
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.
Newell Palmer: Monthly Economic Notes – May 2019
A slowing, but still growing world economy and patient central bankers are supportive of growth assets. A reduction in geopolitical risk has also served to boost market sentiment. The rally in growth assets in the first four months of this year was a snapback from fears in late 2018 of an imminent economic slowdown and hawkish US Fed rhetoric. Since then the US Fed has made a dovish pivot and markets have rallied. However, the path forward from here for markets has various risks that can bring the market lower. These risks include the path of global growth and geopolitical risks.