Citi analysts expect global growth of 2.7% in 2019 paired with steady inflation of 2.4% for 2019. Financial conditions remain supportive as central banks around the world cut interest rates this year to offset the economic slowdown.
Many investors were concerned over the inverted US yield curve and recessionary fears. The inversion was due to the Federal Reserve’s (Fed) excessive tightening steps in 2018 amid rising US-China trade tensions. Citi analysts believe the turn to easing by the Fed and numerous other central banks, as well as a likely more cautious approach to trade negotiations, could help to cushion risk assets.
Citi analysts believe the mild negative response to recent events – Trump impeachment inquiry and UK’s supreme court declaring parliament suspension as unlawful – is revealing of how markets have braced for bad news.
US monetary and trade policy are key recession risks, and both appear to be moving in a less troubling direction. While highly difficult to predict, Citi analysts believe the US is pursuing its trade aims somewhat more cautiously, while more mindful of the domestic economy. Thus, Citi’s Global Investment Committee has moved from underweight to neutral global equities.
Recent “tit-for-tat” actions appeared to be a sharp turn in the approach to trade resolutions by US and China, but was soon confounded by messages that negotiations could be back on the table.
The substantial rally in fixed income has improved the relative value of equity dividends. A modest correction of 10-15% in global equities from their peak could potentially be an opportunity to increase allocations, particularly in dividend yielding equities.
