Limbo for markets will not last forever
Bad but not so bad news left the market in a limbo: equity markets were more or less flat in the month, treasury yields remained in the 1.5 / 1.8 range and credit spreads also remained within the trading range of the last few months. However, markets oscillated between weak US and Eurozone numbers, prospects of a US-China ‘mini-deal’ and tariffs on Europe. Geopolitics and Trump’s impeachment was in limelight as Turkey started a military offensive in Syria. China witnessed subdued data, only partially offset by policy measures.
Global growth remains decent, but weaker than expected and more vulnerable. The dovish stance of central banks and more details on ‘mini-deal’, may save the day for risk assets allowing them to trade in a range. While this (resilient but vulnerable growth) remains our central scenario through the year end, there are other two possibilities for next year. First, an escalation in trade war causes a full-blown contagion from manufacturing into services, there by affecting consumption. If this happens, we would be in for a very defensive stance. Secondly, growth moderately reaccelerates driven by fiscal and monetary policy and improvement in trade situation, a trigger for some repositioning in risk assets.
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