MacroResearchBoard

Pulling Back From The Brink – December 3, 2018

Pulling Back From The Brink

The U.S. and China called a truce this weekend, raising the hope that trade war tensions will substantially ease and a disastrous protectionist outcome will be avoided. Such fears have weighed on equity and credit markets in recent months, and any clearing in these dark clouds would be good news for risk assets.

There are growing signs that risk asset markets have overreacted relative to the underlying fundamentals, and thus are primed to recover if good news accumulates. Stocks have been significantly de-rated this year, and have considerable potential upside given the still positive profit outlook. The key catalyst to a re-rating, aside from easing trade tensions, will be for non-U.S. economic indicators to stabilize or firm. Prospects are good for 2019, assuming no protectionist backsliding.