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Spring 2019: Macroeconomic review

Global markets rebounded strongly in the first quarter of 2019, recouping late 2018 losses. We remain optimistic as a neutral U.S. Federal Reserve is supportive, and early signs of Chinese stabilization are encouraging. This should provide a positive backdrop for the rest of the year, especially if geopolitical risks like the U.S.-China trade dispute and Brexit move closer to resolution.


Stock markets globally rebounded strongly in the first quarter of 2019 following the worst quarter since the financial crisis, to end 2018.

The MSCI All Country World Index, the broadest measure of stocks globally, is now up 16% from December lows. Meanwhile bond prices have rallied materially as well with the Government of Canada 10-year bond yield falling from 2% to 1.6% during the quarter.

Our view was that the decline experienced by stock markets in the fourth quarter, was an overreaction globally to monetary policy tightening in the face of economic uncertainty in the Eurozone and China.

This proved to be the case as Federal Reserve Chairman Jerome Powell reassured markets that further interest rate hikes would not continue until things stabilized.

Now that markets have mostly rebounded the key question going forward will be whether or not we see those signs of stabilization out of Europe and China.

Our view is that both signs of stabilization are most likely to materialize out of China first where policymakers added material stimulus to the economy in 2018 to try and engineer a soft landing in 2019.

This may already be happening as in March we saw manufacturing surveys turn positive in China, a good sign for the current state of the economy.

We expect these signs of stabilization to filter through to economies heavily dependent on exports, like the eurozone, in the second half of 2019.

This should provide a positive backdrop for stock markets through the rest of the year, in particular if geopolitical risks like the US – China trade dispute and Brexit start to move towards a positive resolution.