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IPFS News Link • Economy - International

"What To Make Of It All?"

• Zero Hedge

A troubling preview of what's ahead from Morgan Stanley's chief cross-asset strategist Andrew Sheets.

What To Make Of It All?

There are still 240 trading days left in 2016, and plenty of questions that need answers. How bad is the global economy? Is oil the driver of markets or a convenient excuse? How much bad news is really in the price? What could realistically improve things, tactically or strategically?

Let's start with what we know. Global growth is weak, and our 2016 GDP forecasts remain around 0.2pp below consensus in both DM and EM. But it is important to distinguish between below-trend growth (our forecast) and the recession fears gripping markets. While recent data have been poor, and financial conditions have tightened, a wide variety of indicators still lead us to believe that a US or global recession is not the base case. We will be closely watching US 4Q GDP, due to be released next Friday, which our tracking estimate places at just +0.1%.

If the growth outlook has moved less than the market, maybe the blame lies with oil? Brent was down 25% for the year through Wednesday, and the high correlation between oil and equity prices in this sell-off has implied a level of causation.

We are more sceptical. Falling oil isn't the economic positive that many (including ourselves) assumed a year ago, but its decline looks more like a symptom of other issues (growth concerns, a lack of risk appetite, a stronger dollar) than the cause.


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