<strong>By: BlackRock Investment Institute</strong>

<strong>BlackRock’s <a href="https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/weekly-commentary" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/weekly-commentary&amp;source=gmail&amp;ust=1573119629102000&amp;usg=AFQjCNGdtaYz-mHfc7ikT_GsPMoZfubsMA">Weekly Market Commentary</a></strong>

<strong>Key Points</strong>

<ul>

<li><strong>Easing may be done: </strong>The Federal Reserve signaled no more rate cuts for now, in line with our view that there is limited need for further easing.</li><li><strong>Growth pickup ahead: </strong>We expect a growth pickup in 6-12 months but still see risks that manufacturing weakness caused by protectionism may spill over.</li><li><strong>China data watch: </strong>Markets will assess the impact from the trade tensions on China’s economy from this week’s data including trade and inflation.</li>

</ul>

<h3><strong>Late-cycle easing may end soon</strong></h3>

Global central banks have delivered an unusual late-cycle dovish pivot this year – to extend an already-long economic expansion. The Fed’s rate cut last week was the latest installment of this dovish push. Yet the Fed also signaled the potential completion of its late-cycle rate cuts, significantly raising the bar for additional easing, in our view. Key reasons: a potentially tricky combination of slowing growth and inflation creeping higher; and the prospect for firmer growth in 2020 as easier financial conditions filter through to the broader economy.

<h3><strong>Chart of the week</strong></h3>

<img class="aligncenter size-full wp-image-140544" src="https://www.cover.co.za/wp-content/uploads/2019/11/image001-13.jpg" alt="" width="531" height="422" />

Net number of rate-cutting central banks, 2018-2019

Sources: BlackRock Investment Institute, with data from Bloomberg and MSCI, November 2019. Notes: The stacked bars show the net number of central banks that cut interest rates in each calendar month. Our selection is based on <a href="https://www.msci.com/acwi" data-saferedirecturl="https://www.google.com/url?q=https://www.msci.com/acwi&amp;source=gmail&amp;ust=1573119629102000&amp;usg=AFQjCNEFXvf6v5juzjwNWZEx-dXqR2UYmg">MSCI’s categorizations</a> of developed markets (DM) and emerging markets (EM), with some modifications. We used a total of 13 DMs and 25 EMs for this analysis. On the DMs list, we grouped together the 10 DMs in the euro area as one as the European Central Bank (ECB) sets their monetary policy and removed Singapore as it manages its monetary policy through currency exchange rates settings and not interest rates. On the EMs list, we omitted Greece as the ECB sets its policy.

Many central banks have switched gear this year. See the chart above for the net number of central banks cutting rates. Among them, the European Central Bank cut rates in September for the first time since 2016 and announced a restart of its asset purchase scheme; Brazil’s central bank has cut its benchmark rates to a record low just last week. But some central banks, including the Fed, may be closer to the end of this easing cycle. The Fed signaled a shift to a more data-dependent approach, and we now see a much higher hurdle for it to cut rates again in coming months. Markets are now pricing in just over one quarter percentage point rate cut in the coming 12 months.

One key reason for the Fed to end its late-cycle easing: The U.S. economy has held steady as robust consumer spending helps offset weakness in manufacturing activities and business investment. Third-quarter gross domestic product (GDP) grew at a better-than-expected 1.9% on an annualized basis, just below 2% in the second quarter. U.S. job growth slowed less than expected in October, underpinning the resilience in consumer spending. Looking ahead, there are some tentative indications that the deceleration in manufacturing may be ebbing. We see no signs of a meaningful turnaround in growth yet, but expect easier financial conditions – the result of an easing in monetary policy and a potential lull in trade tensions – to filter through to the broader economy over 6-12 months. As a result we see only limited risk of a U.S. recession over the next year.

The dovish pivot by central banks – a key investment theme featured in our <a href="https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/outlook" data-saferedirecturl="https://www.google.com/url?q=https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/outlook&amp;source=gmail&amp;ust=1573119629102000&amp;usg=AFQjCNF50WBHzlzQkbCGBb3_2NE6zKe-HA">Global investment outlook</a> – has supported risk assets. Yet this is a 2019 story. It is unclear whether further monetary easing would be the best remedy for shoring up slower growth in the U.S. or the euro area, in our view. We also believe monetary policy alone won’t be able to <a href="https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/global-macro-outlook" data-saferedirecturl="https://www.google.com/url?q=https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/global-macro-outlook&amp;source=gmail&amp;ust=1573119629102000&amp;usg=AFQjCNHYdQ1iocymoALzOfT3FCw7xO4jRw">address the next economic downturn</a>, as it is increasingly exhausted with interest rates nearing zero or even below in many developed markets – and weak inflation expectations dragging on actual inflation.

Bottom line: We maintain our overweight in U.S. equities and our neutral view on U.S. corporate credit. As credit remains part of our income thesis and we see only limited recession risks in the U.S., we feel comfortable holding both investment grade and high yield positions into the year-end. What would it take to change our view? An unexpected tightening in financial conditions that leads to a spike in recession risks. Geopolitical frictions have become a key driver of the global economy and markets, but so far we do not see it alone as sufficient to tip the U.S. economy into a recession, especially in the absence of major financial imbalances or systemic vulnerabilities. That said, the U.S.-led protectionist push has injected additional uncertainty into business investment decisions, threatening to weaken economic activity. We stress the importance of building portfolio resilience in this environment, and see government bonds remaining important portfolio stabilizers – even at today’s low yield levels.

<strong>Market updates </strong>

<strong>Assets in review</strong>

<img class="aligncenter size-full wp-image-140545" src="https://www.cover.co.za/wp-content/uploads/2019/11/image002-20.jpg" alt="" width="589" height="392" />

Selected asset performance, 2019 year-to-date and range

<strong>Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index.</strong>

Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, November 2019. Notes: The two ends of the bars show the lowest and highest returns versus the end of 2018, and the dots represent year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, MSCI USA Index, the ICE U.S. Dollar Index (DXY), MSCI Europe Index, Bank of America Merrill Lynch Global Broad Corporate Index, Bank of America Merrill Lynch Global High Yield Index, Datastream 10-year benchmark government bond (U.S. , German and Italy), MSCI Emerging Markets Index, spot gold and J.P. Morgan EMBI index.

<strong>Market backdrop</strong>

A perceived lull in geopolitical frictions has boosted risk assets. Yet we are on the watch for any signs that the drag on economic activity from the global protectionist push is spreading beyond manufacturing. Markets have tempered expectations of further Fed rate cuts, suggesting the dovish pivot by major central banks has run its course for now. Monetary policy is no cure for the weaker growth and firmer inflation pressures that may result from sustained trade tensions. We expect a pickup in global growth in the next six to 12 months, fueled by loose financial conditions. See our <a href="https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/macro-dashboard" data-saferedirecturl="https://www.google.com/url?q=https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/macro-dashboard&amp;source=gmail&amp;ust=1573119629102000&amp;usg=AFQjCNEesHEthgdAk9cAWvA-X2qOaBb3FA">macro data dashboard</a>.