GLOBAL PERSPECTIVES

Global Snapshot

Central banks shift dovishly as activity and inflation news stays weak

united-states-of-america

United States

HIGHLIGHTS

TRENDS TO WATCH

Dovish Fed
The Federal Open Market Committee moved closer to easing, with eight of 17 participants favoring a rate cut by the end of 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.

Unemployment reversal
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.

china

China

HIGHLIGHTS

TRENDS TO WATCH

Banking distress
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.

Monetary recovery
Money supply growth remains weak but a rise could be imminent based on declining interest rates. Activity news may continue to disappoint near term despite fiscal stimulus, but a monetary pickup would support hopes of a 2020 rebound.

japan

Japan

HIGHLIGHTS

TRENDS TO WATCH

Policy confusion
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.

Confidence slide
Wage growth has remained subdued despite low/falling unemployment. The labor market is now cooling: consumer confidence in employment conditions fell to a 31-month low in June while the Tankan business survey signaled easing worker shortages.

european-union

Eurozone

HIGHLIGHTS

TRENDS TO WATCH

Draghi’s last stand
European Central Bank President Mario Draghi signaled 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.

Stronger euro?
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.

united-kingdom

United Kingdom

HIGHLIGHTS

TRENDS TO WATCH

Economy contracting
Output and survey data suggested a Q2 fall in GDP after a solid Q1 boosted by Brexit-related inventory building. The Bank of England bucked the global trend by maintaining a tightening bias, though signaled easing in the event of a no-deal Brexit.

Carney capitulation
Job openings have fallen since the end of 2018, signaling a likely employment stall. With activity/inflation data already weak, softer labor market news may trigger belated Bank of England policy easing – even in a benign Brexit scenario.

emerging-markets

Emerging Markets

HIGHLIGHTS

TRENDS TO WATCH

Easing trend
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.

Monetary divergence
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 Southeast Asia.

Key Market Data

EQUITY MARKET RETURNS FOR Q2 2019 (%) QTR LOCAL CURRENCY YTD LOCAL CURRENCY QTR STERLING YTD STERLING QTR DOLLAR YTD DOLLAR
U.S. S&P 500® 3.79 17.35 6.26 17.43 3.79 17.35
Japan: TOPIX -2.54 3.82 2.45 5.80 0.14 5.73
Euro area: Euro STOXX 2.42 14.41 6.35 14.06 3.88 13.98
UK: FTSE All Share 1.98 10.39 1.98 10.39 -0.40 10.31
Asia ex Japan: MSCI Far East ex Japan (US$) 0.48 9.74 -1.86 9.66
MSCI Emerging Markets (US$) 2.07 9.30 -0.31 9.22

Source: Thomson Reuters Datastream, Janus Henderson Investors; index price returns as of June 30, 2019.

FORECAST P/E 2019 FORECAST P/E 2020 FORCAST EPS GROWTH 2019 (%) FORCAST EPS GROWTH 2020 (%)
World 15.9 14.4 3.5 10.6
Developed 16.4 14.9 3.3 10.0
Emerging Markets 12.9 11.3 4.8 14.1
UK 12.9 12.0 2.3 7.9
U.S. 18.1 16.3 2.8 11.2
Eurozone 13.8 12.5 4.3 10.2
Japan 13.0 12.8 -4.9 0.8

Source: Thomson Reuters Datastream, Janus Henderson Investors’ calculations, and IBES (Institutional Brokers’ Estimates System) estimates for MSCI Indices as of June 30, 2019. Forecast P/E (price-to-earnings ratio), Forecast EPS (earnings per share).

CONSENSUS GDP GROWTH FORCASTS (%) 2019 2020 2021
U.S. 2.5 1.8 1.8
Japan 0.7 0.4 0.9
Eurozone 1.2 1.3 1.2
UK 1.3 1.4 1.6
Asia ex Japan 5.6 5.5 5.5
BRICs 5.4 5.4 5.4
World 3.3 3.3 3.1

Source: Bloomberg; economic forecasts as of July 4, 2019. Forecast GDP = real gross domestic product.

CONSENSUS INFLATION FORCASTS (CPI%) 2019 2020 2021
U.S. 1.9 2.1 2.0
Japan 0.7 1.1 0.8
Eurozone 1.3 1.5 1.6
UK 1.9 2.0 2.0
Asia ex Japan 2.1 2.5 2.6
BRICs 2.7 2.8 2.9
World 3.2 3.0 3.0

Source: Bloomberg; economic forecasts as of July 4, 2019. Forecast CPI = consumer price index.

BONDS MAR 31 2019 YIELD QTR RETURN (%) YTD RETURN (%)
U.S. 10–year Treasury 2.00 3.79 6.19
Japan 10–year governement bonds -0.16 0.78 1.80
Germany 10–year Bund -0.32 2.39 6.07
UK 10–year Glits 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 dept (JPM Global Emerging Markets Debt $) 3.76 10.60

Source: Thomson Reuters Datastream, Janus Henderson Investors as of June 30, 2019.

CURRENCIES AND COMMODITIES JUNE 30 2019 QTR CHANGE (%) YTD CHANGE (%)
Yen/$ 107.74
Yen/€ 137.12
$/€ 1.27
Euro/$ 0.88
Euro/€ 1.12
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

Source: Thomson Reuters Datastream, Janus Henderson Investors as of June 30, 2019.

Constituents:
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