1) Fed is easing, but without HY spreads or jobless claims spiking, both of which typically deteriorate into a recession. Crucially, if initial Fed cuts are not followed by a recession, the next 3, 6 and 12 months equity returns were historically very strong–
2) Global activity momentum is likely to look better into year end,with signs of manufacturing trough. Labour markets in key regions remainstrong, with rising wages. Jobless claims continue to bevery well behaved. A US recession has never started while the unemployment rate was falling. M1 has turned higher in all the main regionsand Capex/depreciation ratios are very low. We maintain a rather non-consensus view that China is healthier now than it was in ‘15-’16 episode, as the FX reserves are stable, Chinese house prices are rising and corporate overcapacity problems, as well as leverage, have reduced
3) Q2 results were better than consensus projections. Beats are seen in all regions, with US at +6% and Europe at +2%. Consensus now projects lower EPS growth rate in 2H than what was delivered in 1H –this might end up too conservative.As many as 50% of corporates raising guidance for the year. In contrast to consensus, we believe profit margins could surprise positively into next year, as productivity is up
4) Equity P/Eslook undemanding, with MXWO at 15.0x fwd. P/E, outright below the long-term average
5) Discretionary investor positioning remains defensive, with no inflows,which we think is a good contrarian indicator.
Disclaimer: Consult your financial professional before making any investment decision.