SLIDE 1
Crown Agents Macroeconomic & Market Outlook Private & Confidential
July 2019
Crown Agents Macroeconomic & Market Outlook Private & Confidential
- Bond and equity markets are sending different signals.
- Bond markets focused on slowing growth and trade uncertainty.
- Slowing world trade being compounded by strong Dollar.
- Equity markets focused on the fact that despite weak manufacturing, service activity continues to hold up
reasonably well.
- Fed rate cut as an insurance policy could sustain the expansion as in 1994 and 1998.
- Bond and equity markets pricing in different recession probabilities.
- Personal incomes and labour market helping to keep recession probability low.
- Fed has gone from expected rate increases to possible rate cuts in 2019.
- Bond yields have probably over-reacted to recession fears; and inflation has likely bottomed-out.
- Rates expected to peak in the US, remain on the floor in the Eurozone & Japan, rise Post Brexit in UK, & nudge
down in China.
- Equities supported by continued positive earnings growth, returns on capital greater than cost of capital and
lack of compelling alternatives.
- However, after a very strong performance so far this year, equity valuations – particularly in the US - are
looking stretched, and any negative news on trade tensions for example, could trigger some weakness.
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