The Macro Report | July 2017
The transition from tranquility
A bit surprising amid widespread stability in current economic readings, our outlook switched to a risk-off environment in June. The month generally brought confirmation that the United States continues to exhibit late-cycle characteristics while Europe, which often lags the global cycle, remained more upbeat. We nonetheless see some significance in the dip in the risk appetite, in part because of the outperformance of risky assets relative to bonds. This divergence appears unsustainable, and a trigger could cause a reversion in risky assets.
Two risks are especially worth keeping in mind as we move into high summer: the advances in weapons development by North Korea and changes in thinking expressed by a number of central banks. Of somewhat less concern but still worthy of comment this month is Washington’s lack of progress on fiscal policy and a shake-up in Saudi Arabia’s leadership.
Missiles can lead to mistakes
North Korea’s missile and nuclear programs are an increasing concern, but their greatest impact may be on the U.S.-China relationship.
Central banks make waves
Against a backdrop of a broadly unchanged economy and outlook, a hawkish tone from several central banks is pushing real rates higher, at the wrong time.
Reflation expectations lose lift
The ambitious policy agenda of the Republicans appears to be narrowing to two issues of importance to investors: the debt ceiling and tax reform.
About the macro report
The Macro Report is written by members of Putnam’s Fixed Income team. With backgrounds in applied economics, currency and interest-rate analysis, and sovereign and local bond market dynamics, this group conducts macroeconomic research in support of Putnam’s global fixed-income strategies.
Michael Atkin, Portfolio Manager
Investing since 1988
Sovereign debt, global growth analysis
Albert Chan, CFA, Portfolio Manager
Interest-rate derivatives, government debt, risk analysis
Onsel Emre, PhD, Analyst
Inflation, risk analysis, global growth dynamics
Sterling Horne, Analyst
Politics and economics
Irina Solyanik, CFA, Analyst
Quantitive analysis, growth forecasting
Izzet Yildiz, PhD, Analyst
Labor market analysis, global growth dynamics