Economic Calendar and Outlook – October 2019

Updated: 03, October

Outlook Commentary: 

US Consumer spending remained strong, yet the near-term outlook for the corporate sector is bleak. Manufacturing recession and unending US-China trade spat might drag down other sectors. FED has been active, but its policy tools are depleting. Damage from trade war might prove to be to large to be overshadowed by rate cuts. Further yield curve inversion might come up which adds to downside risks for growth.

Slow-down in Eurozone economy, Brexit and trade war weight on the consumer and business confidence. This results in further deceleration in Germany, the biggest economy in Eurozone. Technical recession seems feasible if hard Brexit materializes and Europe is targeted in trade war. ECB might act with further stimulus measures, which should keep bond yields negative for extended period of time.

Political drama in UK doesn’t seem to abate any time soon. It’s likely that UK will be heading into an election. It is hard to predict when. The odds of hard Brexit on 31st October has not substantially subsided. Legislative efforts are in play to defer the Brexit deadline. In case, UK does delve into election, the outcome will be practically impossible to predict.

The tax cut puts corporate India on par with Asian neighbors. This is significantly positive for the economy over a longer-term. However, the aggressive stimulus adds to further delaying fiscal consolidation. There is no clarity about how the government will be financing the wider deficit. INR will likely be vulnerable to weakening public finances, the renewed threat of higher oil prices leading to higher domestic inflation, and the persistently wide current account deficit.

Despite large fiscal stimulus in infrastructure investment and PBOC’s rate cuts, it will be difficult to damage control the losses of export orders to US and the structural weakness in global demand for smartphones and related products (highly weighted in the industrial production data). Market’s expectation of 6% growth will be hard to achieve.

We maintain our view of staying conservative in the current environment and to target a 50:50 portfolio allocation between bonds and equity and also to add Gold to a portfolio on dips.

Disclaimer

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