The first quarter provided a change in the fundamental backdrop that had most of the major central banks adopt dovish stances as the financial markets assessed global growth concerns and the effects of trade wars. While US stocks and oil prices had relatively stable rises in the first quarter, currencies provided a much diverse story, with the dollar muscling out a gain.
- Global Growth Concerns Ease Up
- Trade War Season
- Oil’s Rally Remains Vulnerable to Rising US production and Russian Compliance
Major geopolitical events will dominate headlines in the second quarter with the focus remaining on Brexit, the US-China trade war, OPEC + cuts and will global growth concerns continue to ease.
One theme for the start of the year was downgrades with economic growth forecasts. With the Fed, ECB, RBNZ, BOC, and RBA all on hold or possibly considering rate cuts, we could see a patient approach to reacting to economic data in the coming months. Most central bankers will continue to focus on deflationary conditions and will be slow to switch to a tightening bias even if we see a rebound with second quarter data.
US stocks are entering earnings season on a high note, despite a negative earnings growth estimate of -3.7% for the first quarter. The financial markets appear to be around 90% optimistic a trade deal will be reached between China and the US. When you add easy monetary policy to the narrative, many portfolio managers are behind their benchmarks and we could see heightened volatility this quarter.