Counter consensus view on the us
Our colleagues at CrossBorder Capital have issued their update on end April liquidity conditions around the world. The latest data confirms the trends in place: overall conditions are roughly neutral but, that notwithstanding, the global position is the highest it has been for 12 months at 44.4 (’normal’ range 0-100). The driving force, as for the last few months, is from Europe, the UK and increasingly China. The US on the other hand is seeing hard 'soft' data, in the form of macro-economic surveys etc and soft 'hard' data in the form of credit conditions (24.3). The overriding message from the data is the de-synchronised regional cycles, which suggests the downside is protected (slack in the US will be taken up by growth in China) but the upside is also muted. This interpretation differs markedly from the economic consensus that there is a common reflation cycle.
Perhaps the clearest message for investors is to be wary of the US. The liquidity data suggests at best a neutral Fed, economic growth falling and the US$ quite possibly falling by 10%. Given the historically high valuations of US equities and the propensity of investors to invest in global equity funds, which use a reference benchmark with over 50% in the US, we think this is the biggest risk in markets at the moment.
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