We saw the most aggressive programme of central bank stimulus since the global financial crisis in 2019.
This may have postponed our day of reckoning but some asset prices have been even further inflated above fundamentals whilst central banks have now used up most of their ammo to combat the next serious downturn:
“Companies across the globe took advantage of lower borrowing costs to sell a record amount of bonds in 2019, prompting renewed concerns among policymakers about soaring levels of debt.
Central bank policy has played a significant role in what’s happening,” said Asif Sherani, a managing director in debt syndicate at HSBC in London. “It is clearly contributing to the surge of corporate issuance.”“
“The record debt sales highlight tensions between policymakers’ desire to keep the cost of borrowing low in an attempt to stimulate economic growth, while at the same time sounding the alarm over rising corporate indebtedness.”
“The trend has shown little sign of abating in 2020…”
“A measure of US bank lending is showing signs of stalling, suggesting the American economy could face headwinds in 2020…
“The drop could be a sign the US industrial economy is slowing. Manufacturing activity fell to 47.2 last month, compared with 48.1 in November, according to the Institute for Supply Management’s survey.” [below 50 denotes contraction]
“Scott… is a marketing manager for a health and beauty company based in nearby Provo, Utah.
“Though he earns around $60,000 annually — about 20% more than his dad did at his age — he is living with his parents, because he doesn’t feel he can afford to buy a place of his own thanks to soaring housing prices.”
“…a low mortgage rate environment is important in keeping housing conditions in good shape. The Federal Reserve has played its part by slashing interest rates.
“But the problem is that stagnant wage growth and consistently rising home values [due to supply pressures] could price buyers out of the [US housing] market.”
“Mexico created the fewest formal jobs in 2019 since the financial crisis a decade ago after the nation raised the minimum wage and economic growth flat-lined.
“The country lost 382,210 jobs in December, according to data released Sunday by the nation’s social security institute known as IMSS.”
“UK business is in wait-and-see mode following the December general election as business optimism flatlines across the UK, according to a report published today.
“Accountancy and business advisory firm BDO said UK business is waiting to see the impact of the new government and its policies, particularly how the UK will leave the EU.”
“A Bank of England policymaker has hinted he could vote for an interest rate cut at the end of this month, making him the third BoE figure to float the idea this week.
“Gertjan Vlieghe told the Financial Times that if data does not show the UK economy ticking up from its current subdued state, he would seriously consider voting to cut the Bank’s main rate from 0.75 per cent to 0.5 per cent.”
“In Lebanon, the crisis with continuing protests and a deepening debt burden have pushed the country to the brink of bankruptcy.
“Many worry the economic situation could mean dire consequences for the healthcare sector.”
“”The Syrian economy is already very bad, and going to get worse. Whatever the outcome [of the uprising] in Lebanon, it’s going to be very negative for Syria, for business and the people,” he said, referring to anti-government protests that have continued since mid-October.”
“It is clear to everyone now that India is going through a severe slowdown, with Gross Domestic Product growth this year likely to be a woeful 5% – far below the expected 7.4%.
“But it is only beginning to become clear to those who don’t pay close attention to the economy that India will not only be affected in 2019-’20 alone.”
“A perfect storm of benefit cuts and outdated social structures is driving [Japan’s] women, especially the elderly, toward financial ruin.“
“China’s automobile sales dropped 8.2% in 2019 to 25.77 million units, the China Association of Automobile Manufacturers (CAAM) said on Monday. Passenger vehicles accounted for 21.44 million units, shrinking 9.6% year on year.
“In 2018, automobile sales in China declined 2.8%, marking the first contraction since the 1990s.”
“Manufacturers will be hoping for a turnaround in fortunes in 2020…
“It’s unlikely there will be a marked improvement globally. World trade growth will continue to move along at a glacial pace, increasing by 1.7%, but GDP growth will decelerate to 2.4%, down slightly from 2.5% this year. Insolvencies… will … remain at an uncomfortably high level.”
The outlook for the global economy has improved over the past three months, but there may be less capacity to combat a recession when it comes,” Pimco warns in its “Cyclical Outlook: Seven Macro Themes for 2020,” signed by Joachim Fels, the company’s global economic adviser, and Andrew Balls, chief investment officer of its global fixed income division…“
““If additional easing is needed, the focus will likely be on forward guidance, quantitative easing (QE) and longer-term refinancing operations (LTROs), given increasing concerns about the side effects of deeper negative rates,” the Pimco report notes.”
“Investors have largely disregarded warnings about a US stock market crash, but these three red flags have become too serious to ignore:
“Ballooning government, corporate and private debt across the world will make an upcoming bear market more painful.
“Stretched valuations in the market point to an upcoming pullback.
“Geopolitical tension is looming like a dark cloud over the mark.”