As one year comes to an end, another one duly follows, and at Invesco Fixed Income we believe fundamentals will remain solid across global fixed income markets in the coming year.
We believe global growth will exceed current market expectations and the growth slowdown in Europe and China may have troughed and US growth, while weak, has been supported by central bank policy. We expect the US to return to its level of potential growth at around 2% at some point in 2020.
Other risks that have hindered markets during 2019 appear to be receding. Trade tensions have eased, and near-term tariff increases may be delayed. Stabilization of growth conditions, reduced trade tensions and easier monetary policy will likely lead to positive growth surprises. China and Europe will likely lead the recovery with the US lagging somewhat. Overall, we believe markets have not priced in an upswing in global growth and, on the contrary, currently imply the possibility of a US recession.
In our view, Inflation in the US and Europe is likely to remain low, especially excluding the impact of tariffs. Tariffs may cause some near-term upside surprises in US inflation, but we believe they would be temporary and should be discounted. Chinese inflation is higher than policy makers would like due to idiosyncratic and exogenous factors but is still within their acceptable range.
Global monetary policymakers have eased significantly in second half of 2019. The Federal Reserve (Fed) has cut interest rates three times since July 2019 and may potentially ease further if data continue to weaken. It has also begun increasing the size of its balance sheet for technical reasons to support the short-term funding market. The European Central Bank (ECB) is also loosening its monetary policy and has resumed its quantitative easing (QE) programme. Lastly, China has eased fiscal policy, but monetary stimulus has been more restrained.
For more in-depth sector and regional analysis, please read Invesco Fixed Income’s 2020 outlook.
Bernhard Langer, CIO of Invesco Quantitative Strategies, outlines the benefits of systematic and factor investing approaches. Such approaches can include the use of systematic risk overlays that respond to market risks in a timely manner and thus help to protect clients’ assets.
Despite short term Covid-related risks, recent vaccine news provides valuable light at the end of the tunnel. Paul Jackson, Global Head of Asset Allocation, shares more insights.
Our investment teams from around the globe outline their expectations for 2021 to help investors plan for the coming year, wherever the markets take us.
