Global Liquidity Market & Portfolio Commentary - J.P. Morgan Asset Management

Global Liquidity Market & Portfolio Commentary

Contributor Aidan Shevlin

2Q 2019 review: A Cautious Stance as Economies Weaken

In brief
  • Economic growth remained subdued as the employment rate, housing market data and inflation declined.
  • The Reserve Bank of Australia (RBA) cut rates in two successive meetings, bringing the cash rate to a record low of 1.00%. Short-term interest rates continued to trend downwards.
  • Economic data became even more anemic as escalating trade tensions weighed on domestic sentiment and demand.
  • The People’s Bank of China left the reserve requirement ratio unchanged, while injecting liquidity to support economic growth. The central bank is likely to keep the interest rate unchanged and liquidity adequate.
  • Economic growth was fragile with both domestic demand and inflation remaining moribund.
  • The Monetary Authority of Singapore switched from a hawkish to a neutral policy bias in April, and interest rates rose until falling sharply in June in response to falling Libor. Singapore Swap Offer Rates (SOR) could trend down further, although any decline in the S$NEER could narrow the SOR/Libor gap.
  • Markets rallied over the second quarter despite a mid-quarter flight to quality when the Trump Administration abruptly escalated trade tensions; risk assets rebounded when tensions eased.
  • Labor markets and consumer confidence remain strong but leading indicators including business confidence and fixed investment have weakened, signaling risk.
  • The Federal Reserve (Fed) left rates unchanged at its June meeting but, noting multiple threats to growth, said it might act to forestall a downturn. We expect the Fed to cut rates two or three times this year, starting in July.
  • We favor high-quality credit. We extended duration in Liquidity and Managed Reserves and stayed neutral to benchmark duration in Short Duration.
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