We see risk of a UK recession and European slowdown, as Brexit uncertainties weigh on sentiment. Our new BlackRock Macro GPS “nowcasting” indicator suggests Brexit-related uncertainty has already started to negatively impact UK and global economic growth. We see limited direct economic impact on the U.S., developed Asia and emerging markets (EM), but increased downside risks.
We expect lower rates ahead, with the Bank of England set to cut interest rates soon, U.S. rates on hold and potential for further quantitative easing in the UK, eurozone and Japan. We believe there’s limited scope for monetary policy to reflate the global economy, however, and much-needed fiscal stimulus and structural reform progress looks unlikely over the coming months.
In response, we have downgraded European stocks to underweight, with a negative view of the eurozone banking sector. We have a preference for income, and have upgraded U.S. credit and EM debt to overweight. We like U.S. investment-grade credit, hard-currency EM debt, stocks in selected EMs and global quality and dividend-growth stocks. Overall, in today’s uncertain, low-growth environment, we prefer credit to equity and believe exposure to gold and alternatives as diversifiers makes sense.
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