Financial markets dialogue for the first quarter

The fog is clearing. There is light at the end of the tunnel after the difficulties experienced by the global economy in 2019. Caught between the overly hasty hiking of interest rates by the US Federal Reserve (Fed), the continuing China/US trade dispute and widespread geopolitical concerns, the global economy dipped and recorded its lowest growth rate since the financial crisis.

This situation now seems to be behind us, however. We are approaching 2020 with optimism as the uncertainty surrounding the main factors that were weighing on the world economy has been resolved. China and the US reached an agreement in the initial round of talks, for instance, while Brexit went ahead on 31 January and the central banks will continue to pursue their accommodative monetary policies ostensibly supporting the markets.

Global economic growth is currently stabilising and we now believe that it will pick up again and exceed the level of 3% in the second half of 2020. The emerging economies are growing at a far faster rate than the developed economies, and are continuing to drive growth globally. We expect growth to remain positive and stable in the developed countries, where it should continue to be sustained by consumption thanks to low unemployment.

Note that 2020 is an election year in the US and, in the race for the White House, Donald Trump could choose to adopt relatively extreme policies on trade with China or the European Union. This is in fact the main risk that we are building into our economic scenario for the current year. 

In Europe, the ECB is showing unconditional support for the market through its asset repurchase programme, which it has restarted for an indefinite period. In our view, private debt has retained its appeal provided it meets the following conditions: a sound balance sheet, eligibility for the repurchase programme and low cyclicality. Our attitude towards US sovereign bonds is neutral.

The Fed has also done all it can to stabilise the money market, and its conciliatory discourse and Treasury Bill repurchase programme, which will be in place at least until the second half of 2020, reinforce our positive view of the short end of the US interest rate curve. Treasury Bills seem expensive, however, at the long end of the curve, and we prefer to stay cautious, as 2020 is likely to be volatile, especially at this end of the curve, given the continued doubts about inflation, trade and the US elections.