- 2019 has brought a profound shift to views about monetary policy
- Central banks don’t believe they can hit their targets, even longer term
- This Daily Note is the second in our new “Global Fractures” series
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TS Lombard has a 30 year track record in making off consensus-calls on major turning points in economics, politics and markets. We have made our reputation by making bold calls ahead of major inflection points. For example, building on our global economic and financial analysis to find imbalances and fragilities, we identified the coming storm of the Global Financial Crisis – and just as importantly we identified the turning point and the bottom of the stock market too. The different policy responses to the crisis have led to the greater uncertainty and volatility that investors face today.
We believe that the global economy is at another inflection point. The world has changed and we see several new and different vulnerabilities coming to the fore, each one equally important and any one of which could lead to market ruptures. These issues call for deep thinking and strong analysis. To highlight the most important themes we are publishing a series of research notes under the title of “Global Fractures”. You can read some sample reports from the series below.
Recession risks have been raised. Markets are not correctly priced.Read our detailed view on the China vs. US trade war.
Bonds are better than equities at predicting recessions. This is ominous forstock markets.Read our latest analysis on in/correct market pricing.
“Most people—and I’m including myself—thought we’d see a trade deal by now,” said Steven Blitz, chief U.S. economist at TS Lombard. This year’s disappointment notwithstanding, Mr. Blitz is forecasting that talks between the U.S. and China will lead to a preliminary agreement.
A surge in business and consumer confidence stemming from progress on trade is likely to help spur growth next year, leading to improved risk appetite among investors and reducing the demand for the safety of government bonds, Mr. Blitz said. He said he is predicting the 10-year yield will climb to about 2.5%.
“With plenty of fits and starts and histrionics along the way, you’re moving from disorder to order,” Mr. Blitz said regarding trade.
Fraser says the ease of debt (with excess liquidity) and voter demand for more services and public investment has changed the way British politicians view the size of the state. Whatever the outcome of the election, there will be more spending and more intervention in the economy.
The only real risk in such a united scenario is that it creates the ideal conditions for policymakers and currency traders to step on a rake. After a blissfully quiet afternoon with Jay Powell, I think we should all treasure the gloriously curmudgeonly response of Steve Blitz, U.S. economist for TS Lombard: History has shown that whenever the Fed is pretty unanimous leaning in one direction, the economy/inflation is about to zig in the other direction. Fading the Fed when it is so certain has rarely been a bad trade.
Sectors that have had tariffs looming overhead, including consumer electronics and apparel vendors, would also benefit in the U.S., along with the companies that manufacture those goods in China, says Rory Green, TS Lombard economist.
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