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Friday 09 November 2018
The robust performance of the US economy in 2018 has led to the supremacy of US risk assets compared to the rest of the world. Moving towards the end of the year and into 2019, global investors have started to raise questions about whether the US economy and business sector will continue to shine, how inflation will evolve, and which direction the Federal Reserve will take going forward.
On the macroeocomic front, we think that US growth will continue, with some modest deceleration in 2019 that should prevent a more dangerous overheating of the economy. Personal consumption growth and high business confidence continue to be the major drivers of this sound economic phase. So far, tariffs appear to be having minimal effects on the overall economy, with possibly more pronounced effects on corporate margins. Any meaningful impact may not be felt until later in 2019. After the US midterm elections, two possible paths could emerge. The first path is the emergence of divided government, leading to very little meaningful legislation enacted. The second path is a constructive one where there are areas of commonality between Trump and the Democratic leadership in the House (infrastructure spending). We believe, however, that the overall economic picture will remain broadly unchanged. All eyes will, instead, be on the Federal Reserve, as the major assumption of the outlook is for a gradual tightening in monetary policy conditions with no abrupt increase in rates amid only modest upside pressures in wages and prices. No major imbalances are on the radar at the moment. Hence, an economic recession does not appear to be in the cards next year, but markets are likely to become more circumspect with regard to 2020 growth expectations as the deceleration could become more pronounced.
Based on this backdrop, we believe US asset classes will continue to offer opportunities for global investors, but investors will need to embrace a more selective approach.
Our key views on US markets are as follows:
Unless otherwise stated, all information contained in this document is from Amundi Pioneer Asset Management (“Amundi Pioneer”) and is as of November 9, 2018.
The views expressed regarding market and economic trends are those of the authors and not necessarily Amundi Pioneer, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on behalf of any Amundi Pioneer product. There is no guarantee that market forecasts discussed will be realized or that these trends will continue. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested.
This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any service.
Date of First Use: November 9, 2018.
Economic and investment implications following the trade war escalation.
The Gilets Jaunes (Yellow Vests) are a largely spontaneous protest movement that emerged in France, in October. With no declared political affiliation, they called for lower taxes and a higher level of social transfers and public services.The protests, in our view, will have a modest negative economic impact on growth, as a consequence of two opposite effects: a fiscal stimulus (with an impact on public deficit) and damage to business and investor confidence. We have just reduced our forecast on French real GDP growth from 1.5% to 1.4% for next year, while the deficit, depending on the measures, could be higher than 3%, before declining in 2020.
Electoral results broadly confirmed our central scenario of a divided Congress, with Democrats winning the House and the GOP reaffirming its control in the Senate. We believe there are two paths that could emerge between the Democratic leadership in the House and Trump. Read our views on those two paths and the possible market reaction and investment implications in our latest perspective.
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