Global market wrap

Welcome to the last global market wrap before the summer holiday season begins. Looking at the global data and commentary, particularly from the US and China I approach global growth prospects cautiously. The short-term outlook reflects mixed economic signals, but there’s reason to anticipate relative improvement in regions outside the U.S. over the coming months. A low-inflation environment combined with central banks worldwide cutting interest rates creates a supportive backdrop for risk assets like equities and credit as we head toward year-end.

The recent U.S. election has provided some market stability, but I remain vigilant about the potential policy implementation challenges under the new administration. On a global scale, the recovery in Chinese growth and the effects of their stimulus measures are encouraging. At the same time, I’ve observed notable resilience in peripheral European economies, even as France and Germany show signs of weakness.

Central banks, particularly the U.S. Federal Reserve, are walking a fine line. They’re working to balance growth-supportive easing measures with inflation and currency instability risks. Liquidity injections are expected to continue, which is good news for growth assets in the medium term. However, I always factor in the potential for market volatility driven by sentiment or unexpected shocks.

I’m leaning toward growth assets from an investment perspective while maintaining the flexibility to adjust allocations based on evolving macroeconomic trends and central bank actions. It’s a delicate balance, but one that I believe will position my clients to make the most of the opportunities—and navigate the challenges—that lie ahead.

In Australia inflation is showing progress, with the monthly CPI up 2.1% year-on-year—the lowest since July 2021 and within the RBA’s target. However, the trimmed mean remains elevated at 3.4%, likely delaying any imminent rate cuts.

In the US, the services sector is gaining momentum, with the ISM nonmanufacturing PMI jumping to 56.0 in October—the highest since August 2022. Manufacturing PMI also rose to 48.4 in November, surpassing expectations of 47.5, and new orders returned to expansion territory for the first time in eight months. Recent Federal Reserve rate cuts totalling 0.75% are bolstering consumption and interest-sensitive sectors. Retail sales increased by 0.4% in October, slightly above consensus, as households spent more on vehicles and electronics.

In China retail sales surged 4.8%, the highest since February 2024, fueled by holiday spending and government stimulus. Industrial production grew 5.3% year-on-year in October, although this fell short of expectations.

Throughout the Eurozone manufacturing PMI edged up to 46.0 in October, still signaling contraction but showing marginal improvement. Peripheral economies are showing resilience despite weaknesses in France and Germany.

And in the UK, unemployment climbed to 4.3% in Q3, with job vacancies hitting their lowest levels since May 2021.

Base case: Slow growth with inflation stabilising (74% Probability)

Global growth remains cautious, but relative improvement outside the U.S. is expected. Inflation is benign but still above the past decade’s averages, supporting credit and equity markets. Liquidity injections and central bank rate cuts are creating a favourable medium-term environment for risk assets, with volatility risks remaining a factor.

Portfolios will maintain a growth bias while adjusting tactically to macroeconomic developments and central bank policies.

Worst case: Economic weakness and inflation resurgence (11% Probability)

A slowdown in global demand, combined with rebounding inflation, could pressure central banks to tighten policies. Geopolitical tensions and high debt levels could exacerbate economic stress, negatively impacting corporate profits and consumer confidence.

A defensive approach would dominate, with a focus on cash and defensive sectors like healthcare, utilities, and consumer staples.

Optimistic scenario: Strong growth with waning inflation (15% Probability)

Better-than-expected growth rates and easing inflationary pressures could fuel a pro-growth asset environment. Increased consumer spending, combined with fiscal and monetary support, would drive corporate earnings and economic recovery.

Portfolios would emphasise growth assets with low cash levels and a tilt toward cyclical sectors benefiting from economic expansion.

The global economy presents a mixed picture. While challenges persist, the environment also offers opportunities for well-positioned portfolios. Whether the market leans toward cautious growth, economic headwinds, or optimistic recovery, staying adaptable and focused on macroeconomic signals will be key to navigating the months ahead.