The on-and-off again US-China trade war does not appear to have an end date. And the escalating, punishing trade policies between the two countries have increased global fears about an economic downturn.
Just last month we wrote about a ceasefire to the trade war, yet the day after the US cut interest rates to boost its economy, the government imposed further tariffs on China. In response, China allowed its currency to drop and Chinese companies said they’ll no longer buy US agricultural products.
Investors reacted with alarm: share prices dropped from the beginning of August, US Treasury yields tumbled, and the Australian dollar fell to a 10-year low against the greenback.
But ANZ’s Chief Investment Office, while acknowledging that the cycle is advanced, currently has a relatively optimistic view of future market performance and the state of the world economy into 2020. This comes down to the recent rate cut by the US central bank, and the possibility of further stimulus measures, creating better financial conditions for US households, and supporting the overall economy (there are already signs of improvement across the US housing market).
This would likely extend the growth phase of the investment cycle we’re currently in for another year or so.
There are some areas of concern to watch for:
- Even with more stimulus we expect flat company results into 2020. This isn’t great, but it’s certainly better than recession and the very low to negative yields for bonds and cash.
- Lower levels of lending in China suggest there’ll be no strong recovery in manufacturing, but it’ll keep muddling along at its current pace.