World Economy: Get Ready for Biggest Week of 2019


Well investors are bracing for what what might be the busiest week of the year for the world economy we get rate decisions from the bank of Japan and bank of England and Brazil there's also China PMI data and U. S. non farm payrolls on Friday as well of course the prospect of the FOMC lowering rates for the first time since two thousand eight is the big one J. pal is expected to keep the world's largest economy running hot as he tries to keep the expansion going on that note let's bring in LGT capital partners executive director and global strategist Mikio quemada Mikhail it's nice to have you with use of a myself today let's start with the obvious question looking at the U. S. economic data and we did get the GDP figure on Friday showing two point one percent annualized growth on the other hand we did have PC inflation coming in worse than expected but you know two point one percent U. S. economic growth that's not too bad is a rate cut justified by the economic data in the US personally I think it is absolutely justified and I would actually vouch for zero by four fifty basis points the reason is because why growth is okay each eve even if you look at the nominal number it's around four percent on an annual basis that's above the ten year average so the growth is okay but inflation is below target and below expectations and as always inflation expectations are below target there's always a case for central banks to surprise on the easing side whether they will actually do it that's a different question I don't I don't think they will go for fifty we kill we put together a chart to show the strong consensus that is building behind a twenty five bit rate cut from the fed our clients to get the extra perspective this is a story a fed funds futures probability but also story of the spread between implied August rates in current levels that is closer to twenty five bits what happens after this make you what happens in the second half of the year as we get closer to September and October well I I don't want to exclude the unlikely possibility that they will do fifty basis points which would be very good I leased in my view but assuming as you suggest that they do twenty five and as is the consensus I think we will need some time for market said they the markets will probably reacted by the room or sell the fact kind of situation so that means they'll probably sell off for a while and then the markets will adopt a wait and see I can check to see if that's enough of the economy does what the companies said Billy what kind of outlooks they deliver for the rest of the year you know the earning season is still ongoing so there will be a period of questioning and you know wait and seeing for the second half if they do fifty basis points I think we'll it'll be a more bullish outlook overall still you know the album is not negative but twenty basis points is kind of like room not really convincing in my view so do you chase risk assets at this point and the reason I ask is because if you take a look at this chart for instance pull it off on the G. TV function on your Bloomberg you can see that when the fed started hiking rates that actually pushed one month treasury yields above the dividend yield on the S. and P. five hundred four eight you know a reasonable amount of time and we saw a flood of money go back into cash like assets money market funds now with the fed poised to cut you would expect that to reverse and you would expect a lot of people to go back into things like equities hi respawns things like that is that something that you would do it this juncture well you know at the end of the day such just about the contents also but what this card will do to the economy and I think you both twenty five to fifty will have a positive effect it's just that fifty basis points will give us more confidence that indeed we will have foster GDP growth going forward so I would see it in degrees happening but the simple answer is yes I think a rate cut is a good thing for for his castle scored Mikhail we come on in the area no role to an editorial for Bloomberg and it's trending with clients say here's what he had to say this is a an important bit of what he really whatever unfolds this busy week to call press are likely to persist first you've got the key data releases and policy meetings that are going to fail to lift the extra ordinary uncertainty in the global economy and then second markets will ignore the competing signals confident that central banks will continue to insulate them from the economic reality are we out of touch with economic reality make here no not at all I would say I would also not agree that the outlook is extraordinary and certain I mean it is uncertain but there's always uncertainty that the the way I look at it is if you look at the entire ten year cycle and you look at either nominal growth if you want to keep it simple in the U. S. or you look at the broader global you know purchasing manager type servi indices which quite well I show you this sort the cycles within the larger bull market that we had over the past ten years we had three slow downs this one is the third one the current one all of these slow downs were combined with extra ordinary fears that turned out to be nothing the first one was a double date in the early two thousand tends the fear that you know we would relapse into a recession very quickly after the great financial crisis never happened the second one was the China hard landing it did lead to a commodity bear market that led to a crashing many emerging markets in the mid two thousand tens but that's hard landing in China never happened either and now we have the third slow down this time this story is the Cold War I their story the trade war with some connotations of a Cold War and the question is will it ever happen in as bad as away as some imagined and I don't think so I think the economy is the answer to everything the economy is weakening but it's not disasters you have chip makers a dominant chip maker in Taiwan I'm sorry I'm in Asia just a few days ago actually giving a pretty bullish outlook in my view about their what they think is going to happen to cap ex despite the trade war and everything and of course they have exposure to all the board markets so I don't think we have extra ordinary the uncertain outlook sometimes we have some uncertainty but we also have central banks are doing the right thing make sure the economy supplied with money

Coming up next