God bless those central bankers and their cheap money!
That’s what many financial players have been saying for many years now since the beginning of quantitive easing here and in other banks around the world.
And the cheap money/central bankers as potential saviors of the world idea was discussed at a Deutsche Bank Wealth Management conference in Manhattan on Thursday.
The Federal Reserve will continue to succeed in 2020 and the stock market will continue to prosper but at a slower rate than in previous years.
That’s the nub of a new report from Deutsche Bank Wealth Management, “Outlook 2020: The End of Monetary Magic?”
The report said the “magic” would continue, although it said the recession risk will slightly rise compared to 2019.
Last year was a “banner year” for almost all asset classes and central banks, “when it comes to asset inflation, is having the biggest say in the markets,” said Deepak Puri, chief investment officer Americas, Deutsche Bank Wealth Management.
He added that central banks can’t solve all the “structural problems” of economies but its actions have inspired consumer and investor confidence.
The report’s projections assume that the Federal Reserve will “pause” on aggressive cutting. “Our thesis is no rate cuts for the next 12 months.”
Puri cautioned that governments over the long term must overrely on central banks to fix basic economic problems. However, in the short term, markets were prospering last year and should continue to do so in the next year.
Growth rates will “slowdown” in 2022. But the “recession risk in the United States is still limited.” The risk is based on the possibility of political or trade war problems becoming aggravated.
However, Deutsche Wealth Investment officials said these now seem under control. The report said the composite index of 10 leading indicators all remain positive.
The bank also said that the inflation rate would continue to be low, 1.9 percent. Why does it remain so low despite large federal deficits? “The China effects has had a huge impact on that price of a basket of goods,” according to Puri. Technology development is also keeping inflation at bay.
These multiple factors add up to good numbers over the next year here and in economies around the world, according to the report. It projects the S&P will rise by about seven and a half percent this year.
For instance, the bank expected the U.S. economy to grow by 1.6 percent this year compared to 2.2 percent in 2019. It also projected slightly slower growth rates in China and Japan.
“The key point here is that, even though major regions are slowing down,” Puri said, “no major region will be in recession.”
World global GDP, he added, should grow at about 3.1 percent in 2020, about the same rate as last year. He said although the biggest economies are slowing down, “is because there are a lot of emerging markets where we expect the growth trajectory to go up.”
And violatility?
Puri said markets could be affected by “politically charged” events. These can include anything from the presidential election to more trade wars between the United States. In the case of the United States and China, a new antagonistic approach, replacing a model of cooperation initiated in the Kissinger, is going to continue for some. He said that will be a long-term issue because both parties are in agreement on a tough approach to China trade.
