Q3 Global Macro Outlook

Economic Outlook | July 3, 2019

Frances Donald, Chief Economist & Head of Macro Strategy

Q3 global macro outlook - The latest views from our asset allocation team

Key macro themes for Q3 2019

The third quarter looks set to be a busy quarter for investors, defined by a likely spike in central bank activity, trade tensions, and persistent weakness in global growth—all of which will have a significant impact on market sentiment. Having just come off an eventful second quarter, here are the key global macroeconomic themes that we believe will have an impact on asset allocation decisions.

A global easing cycle has begun as almost every major central bank has already cut rates or has signaled an intention to do so in the near term. We’ve changed our forecast for the rate path in the United States and Europe, along with several other smaller central banks.

Elevated trade tensions and associated uncertainties are weighing on global economic activity, particularly within China and the United States. We see evidence that this uncertainty is dragging on business confidence in particular, exacerbated by an existing downturn in these economies.

U.S. growth is showing growing evidence of being in the end cycle and we continue to warn about the likelihood of particularly weak growth in mid-2020. We don’t, however, foresee a technical recession, especially if the U.S. Federal Reserve (Fed) cuts interest rates in 2019.

European growth is finally displaying signs of bottoming, which is good news for the global economy. However, the economic outlook for the region remains contingent on improvements in global trade activity.

China’s growth profile is gradually improving, but it’s far from the “v-shaped” recovery many had hoped for. We anticipate near-term policy easing in China and believe this outcome is underappreciated by global markets.

We remain positive on emerging markets (EM), which have benefited from a range-bound U.S. dollar (USD) and improvements in China. However, a re-escalation of trade tensions and/or the absence of a rebound in global trade activity would work against our moderately bullish thesis. Within EM, we continue to favor debt over equities.

Canada remains a bright spot in the developed-market world, and we believe the Bank of Canada will not be in lockstep with the Fed in terms of implementing interest-rate cuts this year, which should provide some further near-term support for the Canadian dollar along with a flatter yield curve.

The asset allocation team’s 6-12 month asset class views

Asset allocation team’s 6–to–12 month asset class views
Source: Asset allocation’s macro strategy team, Manulife Investment Management, June 6, 2019. Projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations are only current as of the date indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here. Individual portfolio management teams may have different views and opinions that are subject to change without notice.
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About the Author

2018 10 Author Donald Frances 2 Frances Donald

Chief Economist & Head of Macro Strategy

The opinions expressed are those of Manulife Asset Management™ at the time of publication, and are subject to change based on market and other conditions. The information in this article including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Asset Management disclaims any responsibility to update such information. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife Financial, Manulife Asset Management, nor any of their affiliates or representatives is providing tax, investment or legal advice. Past performance does not guarantee future results. This material was prepared solely for informational purposes, does not constitute an offer or an invitation by or on behalf of Manulife Asset Management to any person to buy or sell any security and is no indication of trading intent in any fund or account managed by Manulife Asset Management.

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