European Long/Short: Macro and market update

13 June 2019

Assessing the macro environment allows us to optimally position our portfolio. We do this quantitatively using our Macro Matrix, and qualitatively via our Market Traffic Lights.
The quantitative side removes emotion from the data, delivering an objective assessment that reacts quickly to changes in market conditions, while the qualitative inputs are an aggregation of our opinions. The charts below show our current views.


Quantitative analysis: Macro Matrix – tactical credit and economic indicators

eurolongshortjune2019

  • Credit markets remain positive, buoyed by the hope of rate cuts from central banks. 2–10-year spreads have now fallen so far that curve inversion is likely without cuts. Curve inversion typically augurs recession.
  • Macro data continues to be soft: manufacturing numbers remain in recession but stable, while service data is holding up. Worryingly, input prices are rising. Either these must be passed on, or it will result in reduced profit margins.

Qualitative analysis: Market Traffic Lights – providing a strategic view

Qualitative_Analysis_Market_Traffic_Lights
  • Global influences remain negative: the US/China tariff war is ongoing and the threat of tariffs elsewhere, in particular for Europe, continues to be high. Recent US economic data is weaker than expected, although further Chinese stimulus measures have just been announced.
  • Growth forecasts for 2019 have been downgraded, notably by the Bundesbank which has scotched hopes for a recovery in the second half of 2019. GDP forecast numbers for 2020 are still to be revised.
  • Earnings expectations for 2019 remain around 5%, but if there is no recovery in the second half of 2019, these will have to fall, perhaps into negative territory. 2020 numbers will have to be cut to reflect this.


Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.
Past performance is not a guide to future returns.
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