The Macro Report | September 2018
Market wild cards
The global economy is expected to enjoy relatively solid growth even as emerging markets tumble and the trade wars escalate. But rising real interest rates and a strong dollar are beginning to complicate the relationship with risky assets. Economic expansions may allow real rates to rise and risky assets to perform well. But rising rates that prompt global volatility or overeager central banks that raise rates more than warranted may cause risky assets to tumble. A strong U.S. economy has buoyed equity markets and prompted rate increases. Still, to the rest of the world, especially emerging markets, tightening dollar liquidity is an exogenous shock.
President Trump recently hailed the strength in U.S. consumer confidence. Strong growth, rising stock markets, and a plentiful job supply have lifted confidence levels among households. However, we are beginning to see a substantial gap between two confidence measures: The Conference Board and the University of Michigan. The disparity points to weaker-than-normal wage gains and spending despite a strong labor market. Over in the eurozone, inflation is beginning to reflect the rise in global energy and food prices. Core inflation is forecast to increase later this year and in early 2019 as wage growth improves.
Real rates and risky assets in tug-of-war
The health of the global economy and swings in risky asset prices are intricately linked, and it is unlikely higher real rates will bode well for risky assets.
Clues on U.S. spending, confidence
The economy continues to look stable, but the gap between two consumer confidence measures points to weaker wage gains and spending.
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