Low Economic Volatility May Continue Supporting Credit

By January 21, 2020 07:56

Low Economic Volatility May Continue Supporting Credit

Weekly view from the desk

  • Although some regarded last week’s U.S. non-farm payroll report as disappointing, we regarded it as a solid indicator of what the U.S. economy needs to maintain its trend-like growth. Last year’s monthly payroll average of 176K was below 2018’s monthly average of 223K (which was boosted by fiscal stimulus), but it remained above the monthly average of 75k-100K needed to maintain a constant unemployment rate—assuming the participation rate remains steady. We expect job gains to average about 140K per month in 2020.
  • While U.S. core PCE could push above 2% in the near term, we expect that the uptick will be temporary, and it’s unlikely that a longer-term inflation average would be enough for the Fed to tighten policy. Our base case still anticipates that the Fed remains on hold through most, if not all, of 2020.
  • In our assessment of historical global GDP growth and volatility dynamics over the last 25 years, we observed that the period between 2014 and 2019 was one with softer global growth and less pronounced macroeconomic volatility. And while this lower-growth backdrop could eventually hinder equity market performance, continuation of the historically low level of economic volatility could provide ongoing support, particularly for the spread sectors.
By January 21, 2020 07:56


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January 2020