Global markets – 2020 outlook

Central bank accommodation should bode well for 2020, as the rate cuts enacted by the US Federal Reserve in 2019 have already resulted in an acceleration in money and credit growth.

However, we believe such monetary easing should be more positively impactful for asset prices than the overall economy.

• We are more optimistic about capital markets than we are about economic growth. We therefore favour risk assets over non-risk assets. 
• Within fixed income, we believe that higher-yielding investments will outperform given the low rate environment.
• We are bullish on US equities, with the caveat that investors should expect more volatility in the coming year.

Central banks and geopolitics to shape global economy 

As we look ahead to 2020, it’s clear that central banks are still shouldering the burden for stimulating the economy via monetary policy, as has been the case since the Global Financial Crisis.

After a nascent attempt at normalizing, some major central banks have become more accommodative as 2019 has progressed. That should bode well for 2020, as the rate cuts enacted by the US Federal Reserve (Fed) in 2019 have already resulted in an acceleration in money and credit growth. However, we believe such monetary easing should be more positively impactful for asset prices than the overall economy. We do believe more fiscal stimulus is needed — although most governments are reluctant to provide it.

We note that there are longer-term implications to an overreliance on monetary policy, but that is unlikely to be an issue in the coming year. Countering the positive effects of monetary stimulus is geopolitical disruption — and the economic policy uncertainty that comes with it. Sources of policy uncertainty include:

• The US-China trade war and Brexit, which have been the most prominent creators of uncertainty in 2019.
• The 2020 US presidential election, which will kick into higher gear after the New Year.
• The conflict between China and Hong Kong.
• Tensions in the Middle East, including the September drone attack on Saudi oil facilities that remains to be addressed.

Economic uncertainty is likely to continue to depress capital spending, in our view, and we must watch vigilantly to ensure it doesn’t spill over into diminished hiring plans.

The dichotomy between the manufacturing and service sectors of the economy continues, as we expect manufacturing to continue to experience weakness largely due to the trade wars. However, those economies with less exposure to manufacturing are likely to fare better in this environment, in our view. 

Download the paper to read our outlook for the U.S, Eurozone, U.K, Japan, China and Emerging Markets

Read Kristina Hooper’s 2020 outlook

Read Paul Jackson and Andras Vig’ 2020 outlook

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