The economic policies of the United States and China are shifting towards growth-oriented strategies.
The Federal Reserve, led by Chairman Jerome Powell, has implemented a 50 basis point rate cut to maintain a strong labor market and ensure a soft landing for the U.S. economy. Positive indicators, such as consumer spending and low jobless claims, support the Fed's actions.
Similarly, the Chinese government is taking steps to stabilize its economy, focusing on achieving a targeted real GDP growth of around 5% and providing support to consumers. These policy shifts have implications for global markets, with investors reallocating their portfolios towards defensive assets. However, there is potential for cyclical sectors to outperform defensives as the economic landscape evolves.
Emerging markets, particularly China, have been upgraded to overweight status, and the Chinese government's stimulus measures are expected to benefit Chinese equities and European luxury goods exporters. The Chinese government is also shifting towards fiscal support to revitalize consumer confidence and stimulate demand. However, uncertainties remain regarding the volume and scope of these measures. Geopolitical risks, such as the potential for higher tariffs on China in the event of a U.S. election victory by President Trump, pose a significant risk to economic relations. Investors are advised to consider the potential impacts of geopolitical events on their positions.
In terms of asset class assessments, global equities are viewed as neutral due to high valuations, but there is still room for growth in cyclical sectors. Corporate bonds in Asia and Europe are favored over U.S. corporate bonds, and long positions in currencies such as the Brazilian real and the South African rand are seen as promising. The outlook for U.S. Treasuries has been downgraded to neutral. The interplay between fiscal and monetary policies in the U.S. and China will be crucial in shaping market dynamics.