The four most dangerous words in investing are: this time it’s different.”
- John Templeton
“I think we might get some more good news on that. There’s some good news on phase one around tariffs. We expect there will be something in phase two as well, maybe around intellectual property issues and access for US firms into China."
“And then you have some signs that the global manufacturing cycle is starting to at least stabilise, particularly in the auto sector which is important.”
The United States remains the world’s biggest economy and drives many other economies.
“I don’t really see any major changes the US over the next year,” Mousina says. “It remains in a pretty good position with a low unemployment rate and growth in wages. There probably won’t be another rate cut from the Fed and if there is, it will just be one just to get inflation a bit higher."
“Interest rates are unlikely to be hiked in the US in 2020. I think that the Federal Reserve will remain on hold, which would be positive for the economy there. The budget was agreed to and there was some rollback of expiring tax breaks. From the fiscal side, the US isn’t going backwards either. In fact you are probably getting a bit of fiscal stimulus there,” Mousina says.
“China will be stronger in 2020, and that should also be good for the Eurozone economy which relies on Chinese demand. Normally Eurozone exports and Chinese growth are very closely correlated so a stronger China is good for Europe. But manufacturing in the Eurozone remains weakened."
I think that the Federal Reserve will remain on hold, which would be positive for the economy there... From the fiscal side, the US isn’t going backwards either. In fact you are probably getting a bit of fiscal stimulus there.”
“The Eurozone is getting a bit of a boost from the fiscal side. Eurozone budgets showed a positive fiscal impulse into 2020. Not huge, but still the contribution to growth is positive. While there’s weakness in Eurozone growth, its more likely we will get something out of Germany in 2020. And maybe even from some of the other Eurozone economies, like France.”
Two of the biggest news stories for the US in 2020 are the impeachment of President Trump and US election. For Mousina, the impeachment will be a non-issue but the election is important. A Democratic President will probably mean higher taxes and regulation which would hit sharemarkets.
“Normally in the election years you tend to see business investment struggle a bit. Also, with the trade dispute, if you are running a business and thinking of where you are going to build your next production facility you don’t really know what to do."
“I think that capital expenditure will struggle in the US, which was an issue last year. But on the other hand, the consumer is still very strong and bond yields had been falling. They are still very low."
“And the housing market in the US is starting to recover so the housing construction story will be positive,” Mousina says. “The US can grow at two per cent growth this year, which is probably in line with their potential, even with the election coming up.”
“In China, we’ve seen the government doing stimulus and it will probably do more in 2020. It should expand at around six per cent and that will lead to better Asian growth."
“In Japan, they’ve got fiscal stimulus, probably worth about one and a half percent of GDP, however this will be spread out over a couple of years. It’s more government spending, probably some infrastructure spending, to offset the negatives to the economy from the increase in the consumption tax last October."
“I’m just seeing a lot of positive little things out of China and Japan that will be a positive for Asian trade in general."
“The UK is still really difficult to analyse because they have to create a longer run free trade agreement or some kind of agreement with the Eurozone. While they have agreed to an interim transition period, it’s hard to see them being able to agree to a trade deal with the eurozone within a year and I don’t know if the Eurozone would want to extend that deadline.”
The monetary policy question is critical to the outlook for the year. While US monetary policy will be broadly stable, Chinese authorities are likely to cut rates, Mousina says.
“They may not cut specific consumer interest rates, but probably things like their reserve requirement ratios helps liquidity in China."