Shocks - not age- kill cycles

LOcom_AuthorsAM-Salman.png   Salman Ahmed
Chief Investment Strategist

 

LOcom_AuthorsAM-Arnaud.png   Charles St Arnaud
Senior Investment Strategist

 

LOcom_AuthorsAM-Salt.png   Jamie Salt
Graduate Analyst

 

The global economy is entering its ninth year of expansion since the global financial crisis. Beneath this global trend lie some stark regional disparities: the US economy has enjoyed solid growth for the full nine years, while the Eurozone’s recovery is a more recent phenomenon with the economy now entering its fifth year of positive growth, and some countries – such as China or Australia – did not have an outright recession to recover from in the first place.

Despite this differing historical growth trajectory, global indicators are now pointing to continued growth that is both solid and synchronised across most regions. Coupled with low inflation, this situation that has proven to be positive for risky assets.

In this so-called ‘goldilocks’ environment, it would be easy for investors to become complacent, especially given the low level of market volatility. While we do not see an immediate threat (ie, over the next six months) to this favourable scenario, we are mindful that risks do exist and that they require close monitoring.

In this report we discuss the various top-line risks that might threaten the goldilocks environment before examining more closely the growth and inflation dynamics of key regions and discussing the shift in monetary policy that is finally taking place thanks to the improved health of the global economy. We then discuss what this all means for investors.

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