MACRO OUTLOOK Q1 2020 | 20/20 END OF CYCLE POSTPONED, BUT VISION FAR FROM PERFECT

14.01.2020
BY LONDON & CAPITAL INVESTMENT DESK

2019 will be remembered as the year when major central banks staged a significant turnaround in monetary stance. The easing was precipitated by the US Federal Reserve’s (Fed) dovish pivot in January, and since then we have seen both the Fed and European Central Bank (ECB) loosening financial conditions. Indeed, 2019 has seen the largest amount of central bank easing since the 2008 financial crisis.

On the back of this, investors have begun to show signs of an acute case of FOMO (fear of missing out) and put cash to work in a way that has not been seen for many years. Some fund manager surveys show that cash levels are now at their lowest in six years.

While central banks’ accommodative monetary stances will keep animal spirits high in the short term, the implications for the medium and longer term are more sobering. Over the medium term, it will limit central banks’ ability to ‘fight’ any recessions further down the line. It will also keep fuelling wealth inequality and exacerbate the current wave of populism across the political arena.

KEY MACRO RISKS

Here are the main risks we have identified, and our view on these:

  1. Central banks resume hiking interest rates if they believe the growth risks have passed and inflation pressures are building (high impact, low probability).
  2. A re-escalation in the trade war that delivers a massive blow to global business confidence, investment spending and global supply chains (high impact, medium probability).
  3. Victory of a progressive Democrat, such as Senator Warren or Bernie Sanders, in US presidential elections, triggering a negative policy shift for corporate profits (medium impact, low probability).
  4. Other geopolitical risks, such as an escalation of Hong Kong unrest – which would trigger an aggressive China response and subsequent global sanctions on China – or actions by Iran that threaten global oil supply (medium impact, medium probability).

Click here to read the full macro 

 


The value of investments and any income from them can fall as well as rise and neither is guaranteed. Investors may not get back the capital they invested. Past performance is not indicative of future performance. The material is provided for informational purposes only. No news or research item is a personal recommendation to trade. Nothing contained herein constitutes investment, legal, tax or other advice.
Copyright © London and Capital Asset Management Limited. London and Capital Asset Management Limited is authorised and regulated by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 143286. Registered in England and Wales, Company Number 02112588. London and Capital Wealth Advisers Limited is authorised and regulated by both by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 120776 and the U.S. Securities and Exchange Commission of 100 F Street, NE Washington, DC 20549, with firm reference number 801-63787. Registered in England and Wales, Company Number 02080604