Fiscal

Can Powell achieve a soft landing? There are some indications he is doing it. We examine why our negative stance was wrong and analyze the four growth engines that kept recession at bay. Half of these forces remain while the other half have run out of juice. While this might be enough to keep the economy going, we maintain our defensive positioning. Equities have priced a very benign outcome. Meanwhile, rising rates in anticipation of a Trump win are pushing the economy away from the soft-landing path. We hedge the possibility of further upside in yields in case Trump gets elected by downgrading duration to neutral.

Germany’s economy has lagged that of the rest of Europe for nearly 10 years. So have German stocks. Investors are extrapolating these trends to bet on the country’s deindustrialization. Could Germany manage to beat dismal expectations?

The global political system is destabilizing and the US will turn more hawkish in foreign policy, trade policy, or both, regardless of the election outcome. Tactically go long the dollar.

In this report, we discuss why we are lifting our US recession probability from 60% to 65% and explain why China’s latest stimulus announcements are welcome, but probably are “too little, too late.”