One of the most popular calls in the second half of 2019 was that the global economy, led by the US, was moving towards a recession. The culprit? None other than the US-China trade war. And for some time, there may have been good reason: one of the most reliable recession indicators, the US Treasury yield curve inversion, was flashing red.
Yet as the calendar turns to 2020, all those recession calls seem overblown. The US economy looks like it will close 2019 with an annualized growth rate around 2%. Global PMIs started to rebound by the end of the year, as did industrial production and manufacturing data from G10 economies. Major central banks are loosening or shifting to neutral thanks to tight labor markets, yet tame inflation will keep back any significant efforts to restrict monetary policy (see: Fed Chair Jerome Powell’s December 2019 press conference).
For 2019, at least the first few months, it seems that the ‘reflation’ trade may be back on: that is, ‘long growth.’ Crude oil[1] is the commodity market proxy for growth, while CAD/JPY[2] rates serve as an FX proxy to crude oil.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail at
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