investment insights
Q1 2020 Outlook: Post-trade shock hangover
Macro insights: Post-trade shock hangover
With most of the indicators that we monitor still at levels consistent with below-trend GDP growth, hoping for the world economy to revert back to its post-Great Financial Crisis (GFC) pace appears a tad optimistic. It is true that consumers have remained resilient across the globe, on the back of tight labour markets, but manufacturing – and the Chinese economy more generally – will likely continue to feel the brunt of the trade dispute.
Our base case – or should we say main investment constraint – for the new year assumes only a laborious recovery from 2019’s depressed levels of activity. Global growth can be expected to strengthen during the first quarters of 2020 but will remain in hangover mode: 1.8% in the US, 0.9% in the Euro area, 0.4% in Japan and 5.9% in China. In turn, this means that easy money (aka low rates) will continue to prevail. While currently on hold by its own admission, the Federal Reserve (Fed) may actually be brought to cut rates twice more as the year progresses.
Asset allocation: More of the same in 2020 – but with lesser returns
We intend to position our asset allocation according to the following investment themes:
- Central banks will remain accommodative, keeping government yield curves anchored at low levels.
- Although still weak, growth will be sufficient to prevent a pick-up in defaults and allow for some earnings growth. Indeed, gradual improvement/bottoming-out of economic data will provide increasing support to earnings as the year progresses.
- Portfolios should balance carry strategies with a cautious equities positioning. Nimbleness will be key, taking advantage of volatility episodes to adjust overall risk exposure.
- Option strategies are a good, asymmetric means of managing equity exposure tactically.
- Uncertainty around trade negotiations and other geopolitical risks will continue to prevail throughout the year.
Forex views: Is the dollar heading for a secular decline?
In 2019, the dollar managed to hold on to its prior year gains, bolstered by the flaring up of political/trade uncertainty and the concomitant deceleration in world growth. But, as we head into 2020, these factors appear to be dissipating.
First, US-China trade talks have taken on a modesty better tone, which should unclog trade channels somewhat and, importantly, improve market and business sentiment. In parallel, global manufacturing activity is bottoming out and likely to recover, albeit at a sluggish pace. Finally, a disruptive no-deal Brexit appears to have become a very low likelihood scenario. Although uncertainties remain, the decline in tail risk premia is thus likely to trigger a correction of fundamental misalignments in the currency market.
Wichtige Hinweise.
Die vorliegende Marketingmitteilung wurde von der Bank Lombard Odier & Co AG oder einer Geschäftseinheit der Gruppe (nachstehend “Lombard Odier”) herausgegeben. Sie ist weder für die Abgabe, Veröffentlichung oder Verwendung in Rechtsordnungen bestimmt, in denen eine solche Abgabe, Veröffentlichung oder Verwendung rechtswidrig wäre, noch richtet sie sich an Personen oder Rechtsstrukturen, an die eine entsprechende Abgabe rechtswidrig wäre.
Entdecken Sie mehr.
teilen.