Have Inflation And Growth Peaked?

The obvious question many readers probably have when they see our articles state that the economy is only showing some signs of potentially bottoming while markets are pricing in a full recovery is “what gives investors so much confidence?”. The answer is global rate cuts.

The clear reason investors are so confident that some small improvements in the economy will lead to a global synchronized expansion in 2020 like 2017 is the global synchronized monetary stimulus shown in the chart below.

In Q3 almost 60% of global central banks were cutting rates. That’s the highest percentage since the end of the last recession. It’s even higher than at any point during or after the 2001 recession. If you remember, in early 2016 global central bankers gathered to figure out how to stimulate the economy. The resulting action was more about balance sheet expansion globally, and specifically, in China; this one is more about rate cuts (for now). It’s tough to compare the two.

Some Green Shoots?

By saying global central banks have helped catalyze this rally in global stocks, we aren’t saying these gains aren’t real or that the cyclical turnaround won’t happen. We don’t hold a cynical view of every monetary policy action. Regardless of whether we agree or disagree with some policy action, the goal here is to make money, not policy opinions. The chart below shows there might be some upward potential in the global economy as the percentage of economies growing above trend has risen from about 10% to 33%.

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