Summary: It seems equities have been more right than bonds this time in its outlook for the economy. Equities have continued to discount a soft patch and return to trend growth scenario, and it looks increasingly like that is the scenario that is materialising. South Korea's current account in September jumped back to average levels suggesting economic activity is rebounding from low levels. In today's equity update we also highlight Italian equities as a potential interesting bet in 2020 as we believe the Italian government will be allowed to expand its fiscal deficit. We also take a look at ISS, the biggest decliner today in the STOXX 600 Index, which is revising down its outlook.
The rebound narrative is strengthening every week now and the JPM Global Manufacturing Index printed its third straight gain in October supporting the view that global manufacturing sector is on its way out its recession. But more importantly the slowdown in the manufacturing sector never created large spill over effects into the services sector so it might be that the global economy is turning back to trend growth. While the probability for this scenario is rising it’s still not a clear path and things could still reverse quickly with the supposedly US-China “phase one” trade deal as the biggest tail-risk to investors in the event the trade deal is not done.