2020 Global Market Outlook: Cycle, Interrupted

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Central bank easing and the cooling China-U.S. trade war have set the scene for a global economic rebound in 2020. Our forecast pushes the risk of recession into late 2021, giving equity markets modest upside potential for 2020.  

Key market themes

Hold the epitaphs—this aging cycle seems likely to last beyond 2020. Central bank easing, the de-escalation in the trade war and tentative green shoots in global manufacturing suggest we might be on the cusp of another mini-cycle recovery through the first half of 2020.

We believe that both China and the U.S. have incentives to reach a phase one deal on trade soon. U.S. President Donald Trump would like to declare victory in the trade war ahead of his 2020 re-election bid. Chinese President Xi Jinping, on the other hand, would like to limit the risk of a further trade shock as he strives to balance the short-term requirement for economic stimulus against a medium-term need to reduce debt levels in the Chinese economy.

Low inflation should keep the U.S. Federal Reserve (the Fed) on hold during 2020, although it may move to a tightening bias by year-end if bond market inflation expectations rise toward 2.2%, from their current levels of 1.7%. The November presidential election is likely to be a major source of uncertainty. Low unemployment and trend economic growth favor President Trump’s re-election. The Democratic frontrunners in the primary race all favor at least a partial repeal of the 2017 corporate tax cuts, which would have negative implications for corporate earnings growth in 2021.

We believe the eurozone should benefit in 2020 from easier monetary conditions, the recovery in global manufacturing, the lifting of trade-war uncertainty and Chinese policy stimulus that increases import demand from emerging markets. Overall, we look for a gradual pick-up in growth across the eurozone during 2020. The absence of inflation pressure means the European Central Bank is unlikely to consider lifting interest rates.

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The views in this Global Market Outlook report are subject to change at any time based upon market or other conditions and are current as of December 9, 2019. While all material is ...

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