Fears of an upcoming global recession have been overblown, both J.P. Morgan and HSBC Asset Management have projected in half-year outlook reports.
Investors and commentators alike have grown cautious about recession as global trade disputes have escalated in current months. This was even more fueled by the inversion of the U.S. yield curve in March, which has now persisted for over three months, meaning long-term debt became significantly cheaper than short-term debts.
Little said the U.S. “does not exhibit large imbalances that could trigger a recession” and that “a mixture of reasonable global growth, solid corporate fundamentals and supportive policy” means the global economy will remain to expand at a “reasonable pace .”
“Moving forward, the boost from last year’s tax cuts is set to diminish and the lagged impact of increases in the Fed funds rates in 2017 and 2018 also implies that growth will moderate,” Little notified CNBC.
“Nonetheless, with monetary policy still marginally accommodative, we do not expect growth to drop below its trend pace of around 2% .”
Outside the U.S., HSBC analysts notice major economies displaying steady or improving growth, led by China. While the Fed’s dovish policy pivot has proven a major factor in shoring up confidence and boosting risk assets, Chinese policy easing has been “at least as essential for global growth,” Little proposed.
The note pointed to Chinese import data to suggest that domestic demand is beginning to recover from its 2018 slump and may support growth elsewhere.
While eurozone growth remains more subdued, Little argued that a “solid labor market, a resilient service sector, and accommodative policy” means the bloc should grow at around trend pace, as the manufacturing sector benefits from enhancing conditions in China.
While the Fed has recently opened the way to possible easing measures, Little suggested that market expectations for rate cuts look “too aggressive .”
“If the Fed is correct in its analysis of the economic perspective, there is scope for market rate expectations to retrace higher. Such a scenario would likely weigh on U.S. fixed-income assets,” he informed.