On Tuesday, the International Monetary Fund (“IMF”) headed by Christine Legarde (the next head of the ECB), cut global growth estimates — which were already the lowest since the financial crisis – to 3.2% for this year and 3.5% for next year.
They also suggested that policy missteps (trade wars, Brexit) could put an anticipated rebound in jeopardy. “The principal risk factor to the global economy is that adverse developments — including further U.S.-China tariffs, U.S. auto tariffs, or a no-deal Brexit — sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline,” the IMF said.
Notably, the IMF raised estimates for the US economy by 0.3% to 2.6% this year. This is consistent with US markets have once again vaulted ahead of international peers, outperforming the world by 8.4% YTD as measured by the S&P 500 Index (22.1%) compared to MSCI ACWI Ex-US Index (13.7%) [data as of 7/26/19]. And with the latest move higher in the US Dollar, especially against the Euro this week after Draghi’s comments — according to some USD looks to be breaking out (from a technical perspective)
Perhaps we can take some solace in the fact that the IMF is rarely early in identifying inflection points in global growth — in fact, the worst of the slowdown may have already past. Somewhat humorously, Neil Dutta of Renaissance Macro suggested that a “contrarian equity buy signal has been triggered” as soon as the IMF’s latest pronouncement hit the wires. As contrarians ourselves, we tend to concur.
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