Monthly: Can markets pull up the global economy?

Global central banks have turned dovish on a dime; consequently, financial market conditions have rebounded sharply. Backward looking data is poor, but the markets are ignoring them for three reasons:
Taimur Baig, Masyita Crystallin29 Mar 2019
  • (i) Bonds are supported by low inflation and ample liquidity
  • (ii) Global demand is seen bottoming due to China stimulus
  • (iii) Trade is expected to be helped by trade war resolution
Photo credit: AFP Photo

Global central banks have turned dovish on a dime; consequently, financial market conditions have rebounded sharply

Backward looking data is poor, but the markets are ignoring them for three key reasons:

First, with no sign of inflation in the horizon and ample liquidity being promised by G3 central banks, both nominal and real spreads are well supported

Second, expectation of China stimulus efficacy is causing observers to believe that freight rates, commodities, and auto sales have bottomed

Third, some sort of resolution in China-US trade strife is expected widely, potentially removing a dark lingering cloud over global trade

Rates: Yield curve inversion is flashing a US recession in the horizon, but probability of a recession/slowdown over the next twelve months is overstated, in our view.

FX: DXY to remain firm among Brexit drama, EU slowdown, and EMFX stress

Credit: we see opportunities for value diminished, even in the sub-investment grade space

Equities: Expect volatility with downside risks for both EM and DM markets

To read the full report, click here to Download the PDF.

Taimur Baig, Ph.D.

Chief Economist - G3 & Asia

Masyita Crystallin, Ph.D.

Economist – Indonesia & Philippines

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