Financial Markets Snapshot

Here is a financial markets snapshot from CHASE that I thought was valuable in getting a global perspective:

Federal Reserve is pivoting to a less aggressive stand as it regards increasing interest rates. The Board had a change of heart. This has made financial markets around the world more confident about the future. For example:
o   This is adding more tailwinds to the financial markets
o   There was a market correction in December; went down 19.8%
o   Market has recovered since December lows
o   Market is up 11.4% YTD 2019
o   Inflation is low and has decoupled from the labor markets; this has further reduced any urgency to raise rates
 
The Fed pivoting in its stance has given a tailwind to the housing markets.
o   Long-term rates are unlikely to continue rising
o   Yield on the 10-yr bond is going down
o   Mortgages rates have come down a little, and are unlikely to rise as much as feared just a few months ago
o   Pending home sales are up 4.9% - a sign of strength in the housing markets
 
There is talk of looming recession. However, economists are not good at predicting recessions. The data suggests that there will be no recession in 2019. When a recession comes – and there’s no doubt one will come – it will be mild. Here is why:
o   The current economic expansion started in 2009; it is now the second-longest running economic expansion in history
o   There have been 6 market “corrections” since 2009 – a 10%-20% decline, the most recent one being in last December
o   Recession may not come until 2021
o   Whenever one comes, it will be mild because there are no major imbalances in the US economy today – i.e., no tech bubble or housing bubble
o   The Yield curve is still positive – a sign there is no recession in the short term
o   The economy last year grew 2.9% - a healthy number
o   The prediction for this year is 2.0% growth – lower than last year but still firmly positive
 
The US economy is part of the global economy and therefore what happens the US effects the rest of the world, and vice-versa. Here is a view of what is happening around the world:
o   Europe has challenges: A hard Brexit could reduce England’s GDP by 3%, and Europe’s GDP by 1%; France, Spain and Germany each have individual challenges
o   Emerging Markets have debt that is based in US Dollars; rising rates in the US make that debt harder to service
o   The trade war is hurting China as much as anyone
 
However, not all is bad news:
o   The European nations are not in recession now
o   The political climate in England is suggesting a soft Brexit, not a hard one
o   The Federal Reserve pivot on rates has helped to strengthen the economies of the emerging markets by reducing their debt burden
o   Both China and the US want to resolve the Trade War; a deal may come as early as early March – Any deal would be a huge tailwind for global economic growth
o   China is hurting from the Trade War, but their economy is still projected to grow 6.2% in 2019, more than double that of the USA.
o   The IMF predicts global economic growth this year of 3.7%, down from an earlier prediction of 3.9%....still super-healthy growth. 
Have a wonderful Thursday!!

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