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April Investment Strategy: Ominous prospect of a trade war shouldn't derail global growth

Key points: 

  • The engines of global growth are still running and despite some disappointing first quarter data from the US and Europe, we remain confident in our outlook
  • Concerns about protectionism have risen, given the on-going rhetoric between the US and China. For now though, this seems to be more about tactics on how to start negotiations, with the US administration using tariff threats as leverage. However the worst case scenario - a trade war breaks out - cannot be dismissed and such an outcome could have a significant impact on the overall global economic and policy outlook
  • Fundamentals as well as technical factors continue to be supportive for pro-risk assets and we have made two important changes to our asset allocation. First, we have reinstated an overweight position in US equities and second, we have shifted our long inflation exposure from the US to the euro area.

Recent data, coupled with the trade war rhetoric, could start weighing on the solid growth momentum and optimism which have prevailed over the past six months. As previously highlighted, the economic backdrop has arguably been almost too good to be true, and we have warned about complacency and the need to remain alert to possible risks or disruption to the global expansion. So where do we stand right now? We still believe that fundamentals remain supportive. But equally, it is fair to say that should the current situation in regards to trade and protectionism deteriorate, both business and consumer confidence would take a hit. However we are not there yet, which is why we remain cautiously optimistic and have a moderate risk appetite but we are continuing to closely watch out for any potential threats and obstacles. 

Download Laurence Boone's full commentary 


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