Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
Access both platforms from your single Saxo account.
OECD leading indicators point to coming slowdown
Peter Garnry
Chief Investment Strategist
Summary: The latest OECD data point to an economic downturn where policymakers' response will prove the crucial factor for world markets.
Yesterday, the Organisation for Economic Co-operation and Development released its leading indicators for December, tracking 39 countries. The latest figures show the index to have fallen to 99.2, the weakest level since October 2009. It is the latest in a procession of data releases that point to a coming slowdown, with global policymakers' reaction to this as the key theme for markets into 2019.
A value below 100 indicates that the global economy is growing below the recent trend. In addition, the first order derivative is still negative, indicating that growth is still slowing down. Based on this index, Q1 macro data should come in at disappointing levels.
This phase of the business cycle is the most critical as it is here where policymakers will step in to stave off recession. 2019 could go two ways: either we see a mid-cycle slowdown where the global economy just barely avoids a recession, or the downside dynamics in play prove too strong for the current policy measures in place to avoid this.
This part of the business cycle is also one where great returns can be made via contrarian equity buys, but I must quickly add that the base scenario has historically been negative equity returns. Perhaps the key thing is to prepare for the recovery phase when it arrives, because this period will offer interesting upside opportunities in cyclical equities.
A value below 100 indicates that the global economy is growing below the recent trend. In addition, the first order derivative is still negative, indicating that growth is still slowing down. Based on this index, Q1 macro data should come in at disappointing levels.
This phase of the business cycle is the most critical as it is here where policymakers will step in to stave off recession. 2019 could go two ways: either we see a mid-cycle slowdown where the global economy just barely avoids a recession, or the downside dynamics in play prove too strong for the current policy measures in place to avoid this.
This part of the business cycle is also one where great returns can be made via contrarian equity buys, but I must quickly add that the base scenario has historically been negative equity returns. Perhaps the key thing is to prepare for the recovery phase when it arrives, because this period will offer interesting upside opportunities in cyclical equities.
Within this doom-and-gloom portrait of the global economy, however, there are signs that things may be turning around. The OECD leading indicators for South Korea (see chart below) stabilised in December and may turn around in January as the country moves into the recovery phase of the business cycle (below trend growth but accelerating growth).
Why focus on South Korea? Well, over the past 20 years South Korea’s economy has reliably turned before any other country; its economy is ultra-cyclical due to its automobile, semiconductor, and shipbuilding industries on top of deep export connections to China which, again, is a key component of the global export economy.
We need to beware of false signals, though: look at early 2011 when the world was digesting the Greek crisis. South Korea’s economy was slowing down after the massive rebound in the wake of the great financial crisis. Around early 2011, the slowdown stabilised with growth rates still firmly above recent trend. The leading indicators even turned higher... but then the effects of the Greek crisis spread to all of Europe and it became a euro crisis.
Subsequently, South Korea’s leading indicators turned sharply lower and went below trend growth (index 100) during the year. Note how the country’s leading indicators were already accelerating in early 2012 around six months before European Central Bank president Mario Draghi’s famous “whatever it takes” comment, which many believe to have saved the economy.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX outlook: Tariffs drive USD strength, until...?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)