InvestNow News 5th July – Russell Investments – Global Market Outlook – Q3 update: Chine Syndrome

China stimulus, global central bank easing and a China-U.S. trade-war ceasefire could set the scene for a rebound in the global economy later in the year. However, the inversion of the U.S. Treasury yield curve and the downtrend in business confidence indicators keep us cautious at mid-year.

Key market themes

U.S. President Donald Trump’s tariff increase on Chinese imports in May triggered the end of this year’s equity market recovery. While the stock market has since rebounded, the lasting impact can be seen in falling long-term government bond yields, the inverted U.S. yield curve, the slowdown in global trade and weak global manufacturing surveys. As a result, it now looks increasingly likely that the U.S. Federal Reserve (the Fed) will cut interest rates in both July and September. A combination of Fed easing, China stimulus and trade compromise could make the recent yield-curve inversion a false signal. We will take the inversion much more seriously if it persists for a couple more months. At mid-year, it’s a worrying indicator that biases us toward caution.

In Europe, the region’s long-anticipated growth rebound remains just that—anticipated. Growth indicators are lackluster. And persistent low inflation has the European Central Bank pushing rate hikes further into the future. Bond market expectations for inflation in five years’ time have fallen to a record low of 1.2% as of mid-June. We’re not bearish on Europe, but the one-off factors that depressed growth are taking longer to turn around than anticipated. Overall, we see no signs that eurozone equities are either overbought or oversold, while core government bonds look long-term expensive.

The full report is available here, and a video below >