Global markets: Five events to watch this week

Weekly Market Compass: Tracking elections in Europe and India, and several reports in the US

Time to read: 5 min

It seems that so much happens in a given week these days. However, this week could be particularly momentous as we start to get answers on some key questions that have implications for global markets. Here are five events to watch:

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Small-cap stocks: Why patience matters

It can be difficult to endure short-term bumps, but we believe that’s critical for long-term success

Time to read: 2 min

The payment sector has been the darling of Wall Street the last few years and has continued to be an active space with several mega-mergers. Only four months into 2019, the payment sector already reached $85 billion of merger and acquisition announcements — almost doubling the full-year record of $49 billion in 2018.1 I expect the trend to continue.

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Talking tariffs: New tolls threaten to further strain US-China relations

Weekly Market Compass: Consumer spending could suffer as companies try to pass on price increases

Time to read: 4 min

Last week took investors on a roller coaster ride. The climax came at the stroke of midnight on Friday, May 10, when US President Donald Trump’s newest tariffs went into effect — a 25% toll on $200 billion of Chinese goods. Then later on Friday, the negotiations ended with no material progress, and there are no formal plans to resume talks.  What’s more, China retaliated the morning of May 13 by announcing tariffs on US goods being imported to China.

As regular readers of this blog may recall, I have always been quite pessimistic on the possibility of the US achieving a meaningful trade agreement with China. I have worried about the negative impact of tariffs and the potential that China can retaliate against the US in a meaningful way. In addition, I have always believed there is a misguided concern by the US over trade deficits. Free trade has historically produced lower prices by enabling companies and consumers to purchase from the lowest-cost provider — cheaper imports from China have lowered US consumer price levels by 1% to 1.5% in aggregate.1 That is meaningful for lower and middle income Americans. For a typical US household earning about $56,500 in 2015, trade with China saved families up to $850 that year.1 Conversely, the imposition of tariffs and other forms of protectionism will only serve to drive up prices, in my view. Tariffs can create inflation — not by stimulating demand, but by simply increasing the cost of goods.

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How is the Fed changing its approach to inflation?

A policy shift toward average inflation targeting may be positive for global markets

James OngTime to read: 4 min

Taken together, the recent combination of testimony, press releases, and other communications suggest that the US Federal Reserve (Fed) may be considering a shift to average inflation targeting. If true, this could mean the Fed would move away from trying to engineer a sustained, specific inflation level and would be free to allow above-target inflation for a period before using rate hikes to slow the economy. Such a shift could certainly change how the Fed reacts to new economic and market data. Although there are still many questions around this possible new framework, Invesco Fixed Income believes it would have positive implications for US and global macro performance and could benefit risk assets.

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An overview of infrastructure and master limited partnerships

Part 2 in a series focusing on different types of alternative investments

Time to read: 4 min

Infrastructure is a topic that has been in the news consistently over the past year. Importantly, everyone seems to agree that whatever infrastructure is, the country needs more of it. Given this rare moment of national consensus, I want to welcome you to the second installment of my blog series focusing on the different types of alternative investments. My last blog focused on real estate. Today, we will drill down into the infrastructure sector and a popular subsector, master limited partnerships (MLPs).

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US-China trade talks stumble, and stocks tumble

Weekly Market Compass: Threats of fresh tariffs on Chinese goods suggest short-term volatility

Time to read: 4 min

US-China trade talks have taken a turn for the worse in the last several days and may temporarily go off the rails.

It all started when President Trump threatened to increase the level of tariffs on $200 billion of Chinese goods to 25% by May 10, asserting that China is taking too long in the negotiations and is attempting to “renegotiate.” He also threatened to place 25% tariffs on additional goods. Now China, in response, is threatening to cancel trade negotiations planned for this week between the US and China.

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Elections to bring answers — and perhaps more questions — for Europe

Weekly Market Compass: Polarization is expected to increase, prompting new alliances and coalitions

Time to read: 5 min

It is spring and elections are in the air — along with expectations for increased polarization and uncertainty across Europe.

Pro-EU party wins in Spain — but not convincingly

General elections in Spain were April 28, and the European Union’s (EU) big fear — that Spain would follow in the footsteps of Italy and elect politicians who are antagonistic to the EU — does not seem to have come to fruition, at least not fully. 

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Looking for clues on growth

The view of future growth remains blurry for the world — including the US, China and Europe

Time to read: 4 min

In the past several months, we have seen central banks make an abrupt turn toward a more dovish monetary policy stance. The initial assumption by markets was that this was a decisive turn. However, more recent communications suggest otherwise. As doubts about economic growth continue to grow, so does uncertainty about the path of policy.

Will the Fed raise rates — or cut them?

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Can central banks still be effective?

Weekly Market Compass: Also, six global issues to watch this week

Time to read: 6 min

Last week was a momentous one for central banks — the minutes from the March Federal Open Market Committee (FOMC) meeting were released, giving us insight into the Federal Reserve’s views on the global economy and rate cuts, and the European Central Bank (ECB) decided to remain on its ultra-accommodative path. We were reminded that central banks are critical for supporting growth, controlling inflation and stabilizing economies — a task that is growing increasingly difficult as these institutions become more politicized.

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Are investment grade convertibles on the rise?

After declining for a decade, these issues have been popular in 2019. What could this mean for the asset class?

Time to read: 3 min

Since the beginning of 2019, we’ve seen robust new issuance in the US convertible market. Year to date, total proceeds are above the $11 billion mark1, roughly equivalent to the same period in 2018, a year that ended with approximately $51 billion2 of new paper, setting a decade-high mark. Equally as important for our market is the significant representation of investment grade-rated converts this year. Almost $5 billion, or nearly half of dollars raised by convertible bonds and preferred offerings this year, are rated investment grade.3

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