Mid-cycle slowdown…or something worse?

UBS
Door oktober 21, 2019 09:48

Mid-cycle slowdown…or something worse?

Weak economic data releases last week, including a decade-low US ISM manufacturing index print of 47.8 and a surprisingly large fall in the nonmanufacturing index (from 56.4 to 52.6), drove a mid-week decline of 3% in the S&P 500 and 4% in Euro Stoxx 50. The 10-year US Treasury yield fell below 1.6%. To be sure, the contraction in manufacturing doesn't mean that the entire US economy will slip into recession, as manufacturing only accounts for around 10% of the economy. ISM service sector sentiment is still in expansion territory. The Fed would also be more likely to cut rates further in 4Q if hard manufacturing data confirms the weak sentiment. And prospects of a US-China interim trade agreement this week could support risk appetite. Nonetheless, without evidence of better economic data and a lasting ceasefire in the trade negotiations, we think it unlikely that stocks will move sustainably higher from here and believe recent data affirms that a cautious stance is still warranted.

UBS
Door oktober 21, 2019 09:48

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