Head of Macroeconomic Research
Summary: A look at the most important chart of the month.
The MSCI EM equity indices just break out of a 20-month downward trend. This might be the most important chart of the month. It carries significance for the future direction of emerging markets, but it also points out that a rotation away from defensive stocks to more cyclical stocks might take place in coming months if it is sustained.
Our central macro scenario is that higher central bank liquidity combined with improving US and China credit impulses will start to positively fuel economic growth in Q1-Q2 2020. On the top of that, we think that we are approaching the end of the strong dollar cycle, as the US desperately need a weaker currency, and that idiosyncratic US political risk ahead of the 2020 election will push the USD lower. It would ultimately be positive for EMs and could result into a similar rally than that of the first part of the year.
We are still at the early innings of a rally that could really take place in 2020. In the short-term, tightness in USD liquidity, despite the Fed has risen by $200 billion in all repo actions, remains an issue for EM in Q4 this year.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
