By Krishna Memani via Iris.xyz
Slowing global growth, coupled with lower rates and decelerating inflation, may sustain the cycle
Our Macro Views:
- The global expansion continues but the U.S. slows
- Effects of U.S. stimulus will fade and monetary policy tightening will also ease
- Chinese growth is likely to stabilize by mid-2019, supporting the emerging markets block and Europe
If 2017 was about synchronized global expansion and 2018 was about the divergence of United States growth and policy away from the rest of the world’s, then 2019 will likely be about convergence, as the U.S. slows to a pace more in line with the global expansion. This slowdown in U.S. growth, paradoxically, will be a positive development for equities globally.
2018 brought equity and credit market struggles, but this volatility was not about a sea change in macroeconomic fundamentals. Rather, the volatility was more about investors buying the rumor of late-cycle fiscal stimulus and heightened expectations for economic activity and earnings growth, only to sell the news when stronger short-term growth brought forward tighter financial conditions. In the end, the U.S. got better growth but bad policy (Fed tightening and tariffs), and market returns suffered globally.
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