Janus Henderson: Global Snapshot January 2019
Inflationary pressures easing as global slowdown spreads to US21.01.2019 | 15:08 Uhr
Market drivers:
US
Core stability
Core inflation remained static, defying predictions of a pick-up in
response to faster wage growth. The annual increase in the consumption
price index excluding food and energy was 1.9% in November, below the
Federal Reserve’s 2.0% fourth-quarter forecast.
China
Profits weakness
Industrial profits fell by 1.8% in the year to November, the first
annual contraction since 2015, reflecting limp economic growth and
slowing producer prices. Economic weakness intensified at year-end, with
manufacturing purchasing managers’ indices falling below 50.
Japan
Muted recovery
Industrial output bounced back after third-quarter disruption due to bad
weather, but underlying momentum appears weak with the manufacturing
purchasing managers’ index well down on a year ago. Consumer confidence
has also eroded.
Eurozone
Weak economy
Purchasing managers’ surveys signalled a further loss of economic
momentum in the fourth quarter, following shock German and Italian GDP
contractions in the third quarter. The survey-based composite output
index fell to a 49-month low in December.
UK
Unemployment rise
Brexit worries contributed to a further fall in business investment and a
slowdown in hiring. Unemployment rose by 20,000 in the three months to
October, while the number of people claiming unemployment-related
benefits is the highest since 2014.
Emerging markets
Policy tightening
The trend towards higher interest rates continued, with inflation and
currency concerns outweighing softer economic data. Central banks in
Chile, Czech Republic, Indonesia, Korea, Mexico, Philippines, South
Africa and Thailand hiked official rates last quarter.
Trends to watch:
US
Profits slowdown
Corporate profits continued to expand solidly in the third quarter but
equity analysts cut earnings forecasts in late 2018, reflecting concerns
about top-line sales and wage costs. A profits slowdown would feed back
into business investment and wider economic weakness.
China
Policy easing
Policymakers are cutting taxes, boosting infrastructure spending and
trying to encourage bank lending to private companies. Further easing
measures are likely in early 2019. Watch money trends – currently still
weak – for evidence that policy stimulus is gaining traction.
Japan
Inflation slowdown
The Bank of Japan’s core inflation measure eased to 0.3% in November,
far below its 2% “price stability target”. Yen strength suggests a
further decline but will the central bank admit defeat and downgrade the
target in 2019?
Eurozone
Unemployment reversal?
The unemployment rate fell from 8.7% to 7.9% over the year to November
2018 but recent weak GDP growth may feed through to a turnaround in
early 2019 – contrary to the European Central Bank’s forecast of a
continued decline.
UK
Economic weakness
Money growth and local share prices both fell during 2018 – historically
a signal of poor GDP performance in the following year. Brexit
uncertainty will remain a drag on economic prospects even if a no-deal
crash-out is avoided.
Emerging markets
Currency stabilisation
EM currencies could rally if a US slowdown causes the Federal Reserve to
shelve tightening plans. A recovery would ease inflationary pressures
and create scope for policy easing, supporting local currency bond
markets, with equities suppressed by weaker export earnings.