Asked and answered: Your top five questions

From the US-China trade dispute to the future of Brexit, we offer responses to five of your top questions.

 

Is the yield curve inversion a sell signal?

The bond markets are signaling increasing concern over the economic outlook. For the first time since the financial crisis, the 10-year US bond yields briefly fell below 2-year US bond yields, a development seen by many as a precursor to recession and a sell signal for equity investors. Meanwhile, the yield on the 30-year US Treasury hit a record low, below 2%, suggesting investors are expecting low rates to persist for the long term. We believe that recession fears are overdone. But investors should prepare for a more sustained period of lower interest rates.

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Can the equity market rally resume?

Global stocks, which hit a record high late last month, have come under renewed pressure as worries over US-China trade relations have resurfaced. Central banks around the world have been cutting rates in a bid to offset the resulting hit to confidence. We believe this will support economic growth and markets. But the backdrop of uncertainty may make significant gains difficult. As a result, we are underweight stocks pending greater clarity on the outcome of the trade dispute.

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Read the one pager by the Chief Investment Office


 

Will the US-China trade dispute lead to recession?

The US-China trade war has been escalating. Last week, US President Donald Trump said he would ratchet up tariffs on Chinese imports, from 25% to 30% on USD 250bn of goods, and from 10% to 15% on another USD 300bn of products. We expect China to respond. This increases the risks for both the world economy and markets. For now, we still expect the US to avoid a recession in 2020, helped by Federal Reserve easing and the strength of consumer spending. But barring a de-escalation in trade tensions, we see limited short-term upside for stocks. Instead, we prefer income-enhancing strategies.

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Read the one pager by the Chief Investment Office


 

Can the Fed offset the damage from trade tensions?

The Federal Reserve cut interest rates by 25 basis points on 31 July, the first rate reduction since December 2008, as part of a broader global effort by central banks to insure against economic risks and revive flagging inflation expectations. We believe that Fed easing and strong consumer demand can help avert a 2020 US recession. But risks are tilted to the downside amid escalating trade tensions. Unless the US and China de-escalate, we see limited upside for stocks over the short term.

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Read the one pager by the Chief Investment Office


 

Can Britain’s new PM deliver Brexit?

Boris Johnson, a leading advocate of Brexit in the 2016 referendum campaign, is the new British prime minister. He has said he favors leaving the EU on 31 October with or without a deal. But the new PM will continue to face a political impasse. We now see a rising chance that the UK will be compelled to ask the EU for a third delay to Brexit. This would raise the probability of a snap general election or second Brexit referendum.

Want to know more?

Read the one pager by the Chief Investment Office

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