Equities appear poised for something of an anticlimactic end to a rip-roaring 2019.
The last day of the year finds stocks lacking inspiration, and the dollar continuing to slide against all its major peers.
The greenback has fallen for four consecutive days and is off some 1.6% for December. This comes just a month removed from October’s dive, the worst monthly slide since January of 2018. Of course, this is generally good news for risk assets, but not much can be divined given year-end distortions.
“Dollar down, bond yields up and equities softer certainly aren’t continuations of this year’s dominant trends: more position-reduction than position-building”, SocGen’s Kit Juckes wrote Tuesday.
The flip side of this is that the euro is on track for its best quarter since Q3 2017, rising in tandem with bund yields, which pushed to the highest (and “highest” is obviously still negative) since May this week (top pane above).
You might be inclined to interpret that as good news to the extent it ostensibly bodes well for the overall macro narrative. Juckes, for one, isn’t sure it’s worth trying to draw any conclusions. “If rising Bund yields reflected improved economic confidence or a meaningful rethink about where monetary policy is headed in the medium term, then the synchronized bounce in yields and euro would mean more to me than it does”, he remarked, adding that “as it is, position-squaring and hedging can take most of the blame”.
The common currency is up some 3% since the end of September and has risen in five consecutive sessions. The pound, meanwhile, is headed for its best quarter in a decade.
There were more fiscal rumblings on Tuesday as India released details around a $1.5 trillion infrastructure plan. Modi is attempting to succeed where others have failed with public-private partnerships. As Bloomberg notes, “the proposal by the Modi administration exceeds what has been spent over the past decade — between 2008-17, India invested about $1.1 trillion on infrastructure”. In September, India rolled out big corporate tax cuts in yet another bid to bolster flagging growth.
It’s the same story: Fiscal stimulus will have to take the reins going forward. It’s a small miracle that monetary policy managed to accomplish what it did in 2019 given limited capacity and widespread skepticism about its effectiveness a decade on from the crisis.
In the end, “don’t fight the guys and gals with the printing presses” prevailed in terms of financial assets, and it looks like a net 50 rate cuts will be enough to engineer a feeble inflection in the macro, too.
But, as SocGen’s Juckes goes on to write Tuesday, we’ll be right back asking the same questions in the new year.
“If 2019 has been characterized by below-trend global growth, led by weakness in trade, then it’s fair to point to easy monetary policy as the main driver of asset markets”, he says. “The question for 2020 then, is how much more of that we can expect”.