Market Commentaries   |   January 2, 2019

Global Investment Outlook

Despite the latest escalation in trade tensions and political vulnerabilities in Europe, the narrative of a synchronized global expansion remains firmly intact, while the accommodative monetary and fiscal impulse should allow the expansion to continue uninterrupted in the coming year.

Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions

Cautiously optimistic heading into 2019

After a tumultuous 2018, 2019 looks set to be another interesting year. We expect the global economy to continue thriving in the coming year, even in the wake of lingering trade hostilities and the politically-charged environment in Europe. Encouragingly, economic momentum remains fairly robust in general, while fiscal stimulus from both the U.S. and China is set to extend the economic upturn well into 2019 and provide a buffer as major central banks take coordinated steps towards monetary policy normalization. Taken together, our base case remains that the environment of synchronous global growth will outweigh the uncertain geopolitical backdrop at hand.

That being said, the potential for periodic bouts of volatility prevails heading into 2019 as visibility of the economic cycle shrinks in time and as monetary policy transitions from accommodative to neutral, which warrants a cautious approach at this time.

In spite of this, we expect the most likely outcome to be that the global economy continues to grind higher in a synchronous manner, with all major regions contributing to the advance. The U.S. should lead the global charge, thanks to widespread momentum across both the consumer and manufacturing space, while the double-dose of fiscal stimulus boosts an already-buoyant economy. Meanwhile, the Canadian economy should moderate towards a more sustainable, albeit still above-trend pace. Finally, we expect policymakers in Europe and Japan ultimately to prove successful in reflating growth, while emerging market economies prosper in the environment of improving global demand, ample liquidity, and rising commodity prices. Taken together, the lucrative combination of synchronized global growth and a revival in commodity prices should bolster inflation expectations across the world, though not to levels that would threaten the status of the economic recovery. This reflationary backdrop bodes well for equities and commodities (ex-gold) at the expense of fixed income and the U.S. dollar.

We are however mindful that there are a number of factors that could derail this picture:

A Rise in Trade Protectionism

In this scenario, a rise in protectionism stemming from the U.S. and the threat of a full-blown trade war would have the potential to derail the synchronous global expansion. President Trump’s rhetoric on protectionism has already translated into action, with the U.S. imposing tariffs on a variety of imports including solar panels, washing machines, steel and aluminium – which have been met with retaliatory measures from some of America’s closest allies in response.

Mr. Trump has since upped the ante by imposing tariffs on a total of $250 billion worth of Chinese goods (to which China has retaliated), while threatening to slap tariffs on an additional $267 billion of imports as well as levies on global auto imports – which would be detrimental for trade flows and the global economy alike. In this scenario, anti-trade rhetoric in the U.S. becomes a reality and results in tariffs being imposed on economies such as China, Canada, Europe, Japan and Mexico, with further retaliation igniting a full-blown global trade war.

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