The Janus Henderson Global Snapshot explores the themes driving markets, the trends to watch, market returns and metrics, and the Multi-Asset Team’s outlook for regions and sectors at quarter end.
Economic weakness spreading to labour markets
The Federal Open Market Committee moved closer to easing, with eight of 17 participants favouring a rate cut by end-2019 at the June meeting, after none in March. The Fed's core inflation measure remained below the 2% target at 1.6% in May.
A takeover by regulators of troubled Baoshang Bank raised concern about the health of other small institutions, boosting their funding costs. Consensus hopes of a Q2 economic pick-up were dashed as annual industrial output growth fell to a new low.
Bank of Japan quantitative easing slowed to a crawl as the 10-year government bond yield moved further below the zero target. The BoJ's policy Board held fire on new stimulus measures despite weak core inflation and a looming sales tax hike.
Draghi's last stand
European Central Bank President Mario Draghi signalled further policy stimulus unless economic weakness abates, with rate cuts and more quantitative easing on the table. The manufacturing purchasing managers’ index remained stuck near a six-year low in June.
Output and survey data suggested a Q2 fall in GDP after a solid Q1 boosted by Brexit-related stockbuilding. The Bank of England bucked the global trend by maintaining a tightening bias, though signalled easing in the event of a no-deal Brexit.
Central banks shifted dovishly despite a rise in headline inflation due to energy and food prices. Official rates were cut in India, Malaysia, the Philippines and Russia in Q2, with falls expected soon in Brazil, Indonesia, South Africa and Turkey.
Trends to watch:
A measure of job-finding difficulty in the monthly Conference Board consumer survey rose to a 14-month high in June. The recent turnaround suggests that the unemployment rate is heading higher and will overshoot the Fed’s Q4 central forecast.
Money growth remains weak but a rise could be imminent, based on interest rate falls. Activity news may continue to disappoint in the near term despite fiscal stimulus, but a monetary pick-up would support hopes of a 2020 rebound
Wage growth has remained subdued despite low / falling unemployment. The labour market is now cooling. Consumer confidence in employment conditions fell to a 31-month low in June, while the Tankan business survey signalled easing worker shortages.
The basic balance of payments position – which combines the current account and direct/portfolio investment flows – has moved into substantial surplus as capital exports have slowed, suggesting underlying support for the euro exchange rate.
The stock of job vacancies has fallen since end-2018, signalling a likely employment stall. With activity / inflation data already weak, softer labour market news may trigger belated Bank of England policy easing – even in a benign Brexit scenario.
Narrow money is falling in real terms in Brazil, Mexico and Russia, suggesting economic weakness and an urgent need for policy easing. Growth is strong in Greece, remains solid in India and Poland and is picking up across South East Asia
Source: Janus Henderson Investors at 30 June 2019. These comments are the views of Simon Ward, Economic Adviser, and should not be construed as investment advice. These views may differ from those of other Janus Henderson fund managers.
KEY MARKET DATA
|Equity market returns for Q2 2019 (%)||Qtr local currency||YTD local currency||Qtr sterling||YTD sterling||Qtr dollar||YTD dollar|
|US S&P 500||3.8||17.4||6.3||17.4||3.8||17.4|
|Euro area: Euro Stoxx||2.4||14.4||6.4||14.1||3.9||14.0|
|UK: FTSE All Share||2.0||10.4||2.0||10.4||-0.4||10.3|
|MSCI Far East ex Japan (US$)||-||-||0.5||9.7||-1.9||9.7|
|MSCI Emerging Markets (US$)||-||-||2.1||9.3||-0.3||9.2|
Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 30 June 2019.
Note: the TOPIX Index Value and the TOPIX Marks are subject to the proprietary rights owned by the Tokyo Stock Exchange, Inc. and the Tokyo Stock Exchange, Inc. owns all rights and know-how relating to the TOPIX such as calculation, publication and use of the TOPIX Index Value and relating to the TOPIX Marks. No Product is in any way sponsored, endorsed or promoted by the Tokyo Stock Exchange.
|Forecast P/E 2019||Forecast P/E 2020||Forecast EPS growth 2019 (%)||Forecast EPS growth 2020 (%)|
Source: Thomson Reuters Datastream, Janus Henderson Investors' calculations, and IBES (institutional Brokers' Estimates System) estimates for MSCI Indices as at 30 June 2019. Forecast EPS (earnings per share), Forecast P/E (price-to-earnings ratio).
|Consensus GDP growth forecasts (%)||2019||2020||2021|
Source: Bloomberg, economic forecasts, as at 4 Julu 2019. Forecast GDP = real gross domestic product.
Euro area: EU member states using euro currency (currently 19)
Asia: China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam
BRICs: Brazil, Russia, India, China
World: G10, Eastern Europe & Africa, Asia, Latin America, Middle East
|Consensus inflation growth forecasts (%)||2019||2020||2021|
Source: Bloomberg, economic forecasts, as at 4 July 2019. Forecast CPI = consumer price index.
|Bonds||30 June 2019 yield||Qtr return %||YTD return %|
|US 10-year Treasury||2.00||3.79||6.19|
|Japan 10-year government bonds||-0.16||0.78||1.80|
|Germany 10-year bund||-0.32||2.39||6.07|
|UK 10-year gilts||0.84||1.32||3.65
|Corporate bonds: (Barclays Global Aggregate Corporate Index $)||-||2.67||6.36|
|High yield: (Merrill Lynch Global High Yield $)||-||2.86||9.53|
|Emerging market debt (JPM Global Emerging Markets Debt $)||-||3.76||10.60|
Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 30 June 2019.
|Currencies and commodities||30 June 2019||Qtr change %||YTD change %|
|S&P GSCI Total Return Index $||-||-1.42||13.34|
|Brent oil ($/barrel)||-||-2.45||25.86|
|Gold bullion ($/Troy oz)||-||9.00||10.22|
The above data is intended for illustration purposes only and is not indicative of the historical or future performance or the chances of success of any particular strategy. References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security.
ASSET ALLOCATION DASHBOARD
Please note the below are the views of the UK-based Janus Henderson Multi-Asset Team at quarter end. They do not represent a Janus Henderson house view or the views of individual fund managers and should not be construed as investment advice.
Positive Neutral Negative
|Global corporate||Strong returns amid a perfect combination of tightening spreads and falling yields, but valuation makes additional allocation hard at these levels.|
|UK gilts||Mixed economic data prints and Brexit uncertainty have kept yields at low levels but risks feel asymmetric at these levels.|
|Global sovereign||Dovish central bank sentiment has driven yields lower despite ongoing economic growth, leaving valuations stretched and holding benefits low.|
|Emerging market debt||Country-specific risks remain a headwind but tempering dollar strength and attractive spreads present a good entry point in local currency debt.|
|High yield||Strong performance after 2018 volatility has seen spreads tighten but return potential is acceptable in a world of stable growth and dovish central banks.|
|UK||Brexit and sterling dominate short-term moves but international composition and negative sentiment leave room for a contrarian rally.|
|Europe||Muted macro data and political turbulence remain headwinds, but any pick-up in risk sentiment or economic growth should be positive.|
|US||Despite the 2018 drawdown the US is now breaching all-time highs. Tech looks crowded and pockets of valuation exist, albeit with risks.|
|Japan||Valuations look compelling with some positive macro data to support corporate activity, however weakening Chinese growth affects sentiment.|
|Asia||Trade war headlines and issues around Chinese growth are negatives, although valuations do not appear to be stretched.|
|Global emerging markets||Trade war headlines and issues around Chinese growth are negatives, although valuations do not appear to be stretched.|
|£/$||Brexit-related volatility plagues the UK while dovish Fed communications and headline risk appetite influences US dollar dynamics.|
|£/€||Political developments seem likely to continue to drive headlines and market moves on both sides of the Channel.|
|£/¥||No outright view given the Brexit hysteria although the yen does offer a safe haven status in a world of positive correlations across most asset classes.|
*OPEC: Organization of the Petroleum Exporting Countries
|Property||Falling yields should help returns but valuations and positioning appears crowded. However, yields remain higher than many asset classes.|
|Gold||Gold is a useful hedge to hold as markets become more volatile. Returns have improved as investors seek quality and protection.|
|Oil||Significant volatility in 2019 has reflected a slowing macro backdrop and political noise, however recent OPEC* cuts could prove supportive.|
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