Newell Palmer: Monthly Economic Notes – November 2018
Global GBP growth is expected to slow from 3.9% in 2018 to trend-like 3.6% in 2019 and 3.7% in 2020. The recent era of low interest rates and low inflation (‘lower for longer’) has now transitioned to a period of rising interest rates, rising wages and central bank tightening. However, there are mixed views whether the current environment can be characterised as ‘late cycle’, given that the US, EU and Japanese economies are not exhibiting characteristics of a typical ‘late cycle’ expansion. The implication is that this cycle could extend, especially if inflation continues to rise slowly. The risks for the current cycle are trade policy, US fiscal policy and central bank policies, and these factors should be monitored.Monthly-Notes-November-2018.pdf
Newell Palmer: Monthly Economic Notes – October 2018
The synchronised global expansion of 2017 has long receded. Growth has not only plateaued, but it has also become more uneven across regions this year. Increasing economic divergence and different performance of various asset classes are typical of an ageing expansion. The consensus is that we are currently in late-cycle of the current economic expansion. However, it does not necessarily lead to the conclusion that a recession is immediately imminent. In fact, a late-cycle expansion can last if excesses and major policy mistakes are avoided. A recession over a three- to five-year horizon is quite likely, but it is not currently visible in the immediate horizon.Monthly-Notes-October-2018.pdf
January’s burst of equity-market euphoria has given way to fear of a trade war, a more hawkish Fed and the return of volatility. The challenge of late-cycle investing is that equity valuations are stretched, there are worries about the economy overheating and the Fed is taking away the punchbowl. At the same time, economic growth and earnings are strong. The added complications are that the US federal government has enacted substantial fiscal stimulus at a time when the economy is at full employment, and President Trump is imposing trade sanctions that could escalate into a major trade war. However, the tit-for-tat tariffs triggered due to US steel and aluminium import tariffs are trivial in size. All the other tariffs are just proposals, contingent on the US and China being unsuccessful in reaching a negotiated solution. Hence, so far it has been a phoney trade war between the US and China.