(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019


Global
stocks fell on Wednesday as investors reacted to further signs of an economic slowdown.

The
immediate catalyst for the decline was the release of weaker US jobs data. September private payrolls rose at the slowest pace in three
months and August job growth was revised lower. This release, which came a day after the ISM manufacturing index fell to its lowest level
since June 2009, adds to concerns that the contraction in US and global manufacturing could be starting to undermine the strength of
employment markets and consumer spending. Earnings releases from top US automakers were also disappointing. Meanwhile, political
uncertainties over the launch of impeachment proceedings against President Donald Trump have added to existing uncertainty over the
US-China trade conflict.

The
market’s retreat underlines our view that investors had become overly relaxed about risks stemming from the US-China trade conflict and a
slowing global economy. We have a modest underweight to equities, and a preference for US stocks over the Eurozone, since we see the Eurozone
as more vulnerable to a global industrial slowdown and the European Central Bank has less room to support growth through rate cuts than the
Federal Reserve.

What
are we looking for next?

The
slowdown in manufacturing may have further to run, especially if—as we expect in our base case—the announced US tariffs on Chinese imports
are implemented.

To
be sure, the contraction in manufacturing needn’t mean the whole US economy slips into recession. Manufacturing represents only around
10% of the US economy. In the much larger service sector, sentiment remains robust, with the ISM non-manufacturing index registering a firm
reading of 56.4 in August. In addition, if the weaker manufacturing sentiment is repeated in the Federal Reserve’s Beige Book and
industrial production data confirms the contraction, the Fed would be more likely to reduce rates further in 4Q, which could help support
overall economic growth.

However,
as the ISM data illustrates, risks are elevated. We will be watching this week’s US nonfarm payroll report for any signs of deterioration,
noting that the employment component of the ISM index dropped to 46.3 in September, the lowest in more than three years. We will be alert in the
coming weeks for further signs that the manufacturing slowdown is spreading to other parts of the US economy.

What
does this mean for investors?

We
still believe that the US can avoid a recession, based on the resilience of consumer spending. It also remains possible that a trade truce
between the US and China could lead to a rebound in manufacturing activity. But our base case is for the continuation of heightened tensions
between the US and China. Against this backdrop, we don’t think stocks can move much higher from here and we remain modestly underweight
equities, particularly markets like the Eurozone that are more exposed to trade and growth risks. We also favor income-generating
strategies, such as through our overweight to USD-denominated emerging market sovereign bonds, which should benefit from easier
monetary policy.

By
ubs



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(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019
(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019
(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019
(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019
(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019

(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019

(03 October 2019 ) DAILY MARKET BRIEF 2:Market Decline A Reminder Of Growth Risks - Market News - 3 October 2019