Economic growth downshift
Global growth slowed in the past quarter, hindered by manufacturing weakness, elevated uncertainty from protectionism and Brexit, fading fiscal stimulus and the slowing Chinese economy. Our base case is for continued economic growth, albeit at a slowing pace, but we recognize that the downside risks have increased.
Earnings critical to higher stock prices
Global equities rallied in June and July, but stumbled in August as trade tensions escalated. Stocks could deliver gains in the mid-single to low-double digits in an environment of moderate corporate profit growth, low interest rates and low inflation. But in a recessionary scenario, the damage to earnings and investor confidence would send stock prices meaningfully lower.
Low bond yields stoke valuation concerns
Global sovereign bonds have extended their rally and our valuation models are signaling caution as yields declined to record lows. We expect upward pressure on real interest rates over time, potentially leading to low or even negative returns on sovereign bonds for many years.
Executive summary
Financial markets face an evolving set of macroeconomic headwinds and, against this challenging backdrop, central banks are now offering support through monetary stimulus. Our base case is for continued economic growth, albeit at a slowing pace but we recognize that the downside risks have increased.
Economy
Global growth slowed in the past quarter, hindered by manufacturing weakness, elevated uncertainty from protectionism and Brexit, fading fiscal stimulus and the slowing Chinese economy.
Fixed income
Central banks have now pivoted to monetary stimulus in a synchronized fashion, with some having already delivered rate cuts and others hinting at additional easing measures.
Equity markets
Global equities rallied in June and July, but stumbled in August as trade tensions escalated between the U.S. and China.
Asset class commentary
Global economic growth slowed in the past quarter, extending a trend that began at the start of 2018. Manufacturing weakness has been the main cause of the slowdown. Services have experienced only a minor deceleration and consumption has held up reasonably well. Other factors hindering economic growth have been the elevated uncertainty from trade protectionism and Brexit, fading fiscal stimulus and the slowing Chinese economy.
When does a trade war morph into a currency war?
All eyes are on the Chinese renminbi
The Canadian dollar is likely to be among the weakest developed-world currencies
Direction of rates
Market views
Regional preferences
Emerging markets outlook
Emerging-market equities rose 3.9% in U.S. dollar terms between January and August of 2019, although the gains were far from a smooth ride. Emerging-market stocks started the year strongly, up 14% between January and April, but ceded about half of those gains in May alone.
