Q4 Global Macro Outlook

Key macro themes for Q4 2019

As we head into the final quarter of the year, it’s clear that the best-laid plans of major central banks to normalize interest rates have gone awry. Instead, they’re digging deeper into their monetary policy toolbox in the hope of generating inflation and stimulating growth. Unfortunately, it’s unclear if these efforts will support risk assets, let alone underlying growth, given the global economy’s fragile state. Against a backdrop of geopolitical uncertainty, we discuss the key macroeconomic themes that we believe will become market drivers in the months ahead.

  1. Global central banks will continue to ease monetary policy. We believe that the current wave of easing, which includes both interest-rate cuts and unconventional monetary policy measures, will ensure that interest rates stay low for an extended period.
  2. Uncertainty caused by trade tensions is weighing on global economic activity, and it’s hurting business confidence. This uncertainty isn’t likely to dissipate in the near term, implying a flight to safety and continued U.S. dollar strength, which could have important implications for global financial conditions.
  3. Asia remains caught in a tug-of-war between global trade tensions and China’s increasingly active stimulus program. While we’re not convinced that Chinese stimulus will have a material positive effect on the rest of the region like it did before, there are countries that stand to benefit from changing supply chains in the medium term.
  4. An interesting divergence is unfolding in the U.S. economy: Its manufacturing sector is displaying signs of fatigue even as consumer spending stays strong. While the U.S. consumer’s resilience is reassuring, we remain vigilant for signs of deterioration. It’s also worth remembering that while the consumer is the main driver of U.S. economic growth, the manufacturing sector is similarly important to earnings growth.
  5. Most would agree that a great deal of negative news has already been priced into the European story, but it remains difficult to build a convincing argument to be excited about Europe. Global trade tensions have pushed key segments of the continent’s economy into recessionary territory and the long-anticipated “inflection point” remains nowhere to be seen—yet.
  6. Is it possible that the Bank of Canada is the G10’s most hawkish central bank? The bank has opted to keep its key policy rates unchanged even as its peers have moved into easing mode. However, as U.S. weakness bleeds into the Canadian economic landscape, we believe that the Bank of Canada will ultimately join its counterparts in the current easing cycle.


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Frances Donald

Frances Donald, 

Global Chief Economist and Global Head of Macroeconomic Strategy, Multi-Asset Solutions Team

Manulife Investment Management

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