Monthly House Views - A multi-pace global economy

Divergent economic growth
 
The global economy is set to slow over the next few quarters, but stark differences will persist between regions. Robust growth in the United States should ease as the jobs market comes off the boil. The euro area economy looks more fragile.German industry continues to struggle, and France is beset by political uncertainty. That said, European economies can count on a boost from falling inflation and synchronised rate cuts.

In China, it remains to be seen whether the latest stimulus package can reignite domestic demand. Confirmation that the battle against inflation is won in developed economies should allow the world’s major central banks to further ease monetary policy. Meanwhile, political– US elections and French budgetary haggling – and geopolitical issues are continuing to heat up and could trigger a spike in market volatility at any time
 
We remain Overweight equity markets and constructive on fixed income.
With growth set to remain favourably oriented and rates coming down we stand by our equity Overweight. We prefer European markets which look cheap and harbour a good number of value stocks. At the same time, we remain constructive on bonds as they should benefit from the rate cut cycle and act as a hedge against any sharp correction in stock markets. As we continue to expect a synchronised easing cycle, we keep a neutral position on the dollar against major currencies.

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