Where we stand – our highest conviction views

02 Apr 2019 - Martin Shenfield
Where we stand – our highest conviction views
  • Global macro data to disappoint
  • Deflationary pressures rebuilding
  • Yield curve inversion will reinforce Central Banks’ s dovish response
  • EM equities due further consolidation/correction

Recent deteriorating global macro data and US yield curve inversion have prompted a much more dovish Fed as our chief US economist Steve Blitz has always predicted. However this more proactive policy response together with expectations of a benign US-China trade deal now appear largely priced in, whilst US economic data will likely deteriorate further. This is supported by Konstantinos Venetis and Davide Oneglia’s latest GLI report which confirms renewed weakness in our proprietary leading indicators together with a notable inventory overhang which will cap any immediate production recovery.

Dario Perkins worries that generally the world is looking more deflationary with the recent acceleration in wages more likely to lead to a squeeze on corporate profit margins than a wageprice spiral. Both he and Steve Blitz argue that this time Powell’s Fed will not ignore the inverted yield curve and is therefore more likely to cut rates in Q3.

Steve Blitz highlights how deteriorating export growth through the negative impact on earnings expectations is increasingly impinging on consumers, small businesses and capex generally. Moreover firms and consumers are less likely to be able to access credit from banks given the collapse of two year Treasury yields below the federal funds rate, the spread of which traditionally correlates with……

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#Central Banks #Emerging Markets #Equities #Fed #Martin Shenfield #Trade #Yield curve


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