Head of Macroeconomic Research
Summary: Our central scenario remains the extension of Article 50, that should be requested by October 19th, and new Parliamentary elections that could take place five weeks after the initial Brexit deadline.
Our favorite macro gauge UK credit impulse, which explains economic activity nine to twelve months forward with an “R2” of .60, is going through its eighth quarter of contraction, the longest period since the early 1990s. It is currently running at minus 3.9% of GDP versus a low point this cycle at minus 7.2% reached in early 2018. The length of the contraction is similar to that of the period 1990-1992 when the United Kingdom entered into recession due to high interest rates, an overvalued exchange rate and falling house prices.
The current situation is profoundly different since it is Brexit uncertainty that is driving the economic downturn. The uncertainty goes hand in hand with low interest rates, a GBPUSD exchange rate undervalued by 23% and lower house prices in real terms.
The outcome of the ongoing negotiations between the United Kingdom and the European Union is unlikely to change the future of the British economy. The prolonged contraction in the flow of new credit in the economy and the five straight quarters of contraction in business investment are the two key factors usually leading to a recession.
However, there is no guarantee that the UK economy will fall in recession this year as a jump in stockpiling ahead of October 31st could artificially spur economy activity, as was the case in Q1 2019.
Strategic view :
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Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
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