European Long/Short: Macro and market update 14 August 2019 Credit markets remain strong Rate cut in the US, but not in Europe PMI data continues to weaken Quantitative analysis: Macro Matrix – tactical credit and economic indicators Credit markets remain strong as investors enter the fear phase. Yield curves are inverting and rates falling. The expectation of a rate cut in the US was met, but not in Europe. The market continues to think both the FED and ECB will drag their feet and be slow to cut rates. German and UK GDP were negative in the second quarter, albeit it for very different reason. PMI data continues to weaken and is now in dangerous territory. There is a real risk of recession over the next year. Qualitative analysis: Market Traffic Lights – providing a strategic view Global PMI data and trade wars are now a major problem. Since the G7, further tariffs on China by the US have been announced. Europe is beginning to join the trend: a potential ‘carbon tax’ (aimed at the US and China) alongside tensions between France and the US over a digital tax. When economic growth in Europe is very weak, this is a real danger. Growth forecasts are being downgraded for 2019 but the focus will soon shift to 2020, where optimism remains. However, there is a significant risk to 2020 from a weak second half of 2019. We are sceptical of the economic impact of a further cut in interest rates. The problem is not the cost or availability of cheap debt but weak demand, weakening orders and thus cuts to investment plans. Important information This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested. The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.