Today’s ECB meeting confirms the recent dovish shift we have observed from other G10 Central Banks. The real surprise today was not in the measures announced but rather in the timing (today vs later on). This shift can clearly be explained by the deceleration in macro and inflation trends which we have witnessed via our proprietary nowcasters (a systematic measure that combines a large number of economic data series in real time).
Our Growth Nowcaster currently remains above the zero line (above potential growth) however, the developed world is decelerating. We were not surprised by the Dovish turn that the Bank of Canada took yesterday as our Canadian Growth Nowcasters is hinting at an entry into a recession for the country for the first quarter of this year. In Europe, if the deceleration continues at this space for another two months we are also likely to witness the zone enter into a recession. Brexit uncertainties could also further weigh on the UK and the Eurozone.
We remain positioned positively on growth assets for the time being however, given the recent trend in our indicators we have implemented hedges and remain cautious over the medium term. Bottom line, we believe growth oriented assets will be at risk this year if the slowdown in the global economy continues to materialise. We believe that part of the recovery in equity markets we have witnessed since the beginning of the year is not about underlying fundamentals, which continue to deteriorate and disappoint, but due to technical factors that could easily reverse and also due to the recent dovish shift in Central Banks. We note however that the latter is becoming fairly priced by the market.
Following this afternoon’s dovish European Central Bank meeting, Jeremy Gatto, Investment Manager on Unigestion’s multi asset Navigator fund, said :