Global Asset Allocation: November Insights

Yoram Lustig , Head of Multi-Asset Solutions, EMEA


As of October 31, 2019

Down But Not Out

After 21 months of slowing global growth, we are starting to see signs of stabilization, signaled by a potential bottoming in the industrial economy. The J.P. Morgan Global Manufacturing PMI ticked up in October—the indicator’s third increase in a row—tempering recession fears. The loosening of global financial conditions starting to kick in, resiliency of the U.S. consumer, receding trade war uncertainty, and progress on Brexit have all contributed to the rosier sentiment shift. However, some economic data remain worrisome and business investment remains on the sidelines, questioning the sustainability of the stabilization.

“Buck‑ing” the Trend

Since 2011, the U.S. dollar (USD) has been on a steady upward trajectory as U.S. growth and interest rates have outpaced other developed markets. However, in October, the trade‑weighted U.S. dollar index tumbled 2% as easing trade tensions and optimism around Brexit moved demand away from “safe‑haven” assets. Perhaps the recent stabilization in global growth and abating recession fears could give other currencies legs versus the USD going forward. Emerging markets would be the primary beneficiaries of this USD regime shift, as it would reduce their USD‑linked debt obligations. However, with the Fed indicating a reluctance to cut interest rates, we could see the U.S. dollar hold its ground a bit longer.

Earnings: A Bit Better Than Nothing?

With earnings season winding down, results have been modestly better than expected and may even escape a negative earnings‑per‑share print for Q3. Weakening revenues, margin pressures, cost savings, and trade tensions have been the focus of many companies’ earnings reports. Several companies have also highlighted their reluctancy to deploy capital given the large amount of uncertainty remaining in the macro backdrop. In Q3, weakening energy prices have been a major theme, with energy company earnings down over 30%. Expectations for 2020 earnings remain elevated, with a growth rate still targeting more than 9%, although many predict estimates could be revised lower should growth and capex remain tempered amid trade and election concerns.

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