Global Market Perspective - Q3 2019

Both equities and bonds rallied strongly in the second quarter as markets moved to price in a more dovish path for central bank monetary policy.

The trigger came from the US where expectations for interest rates moved down significantly, from assuming no move in policy this year to assuming rate cuts.

The European Central Bank also signalled easier policy, whilst rates have eased across Asia which has been particularly affected by the trade wars.

Soft economic activity and ongoing trade tensions were the catalyst for these moves, against a backdrop of subdued inflation.

Although a more difficult economic backdrop does not bode well for corporate earnings, equity markets have benefited from a re-rating on the back of lower risk free interest rates.

Subdued growth

Toward the end of the quarter, optimism increased as the US stepped back from raising tariffs on Mexico and then, at the G20 meeting, agreed to resume trade talks with China.

We see only a modest improvement in the economic environment with global growth expected to remain subdued over the next 12 months.

Fading fiscal stimulus and the effect of past tightening of monetary policy weighs on the US, whilst Europe and Asia do not have sufficient domestic demand to drive growth at an above trend rate.

The strategy note takes a closer look at the outlook for US monetary policy whilst our research notes report on our cyclical models and the impact of heightened geopolitical risk.

From an asset allocation perspective, our economic outlook leads us to be cautious on equity markets and we have focused our risk budget on credit and carry assets which can benefit from low rates whilst being less vulnerable to the economic cycle.

The full Global Market Perspective is available as a pdf below.

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Global Market Perspective Q3 2019 32 pages | 1,428 kb