Macro data have been strong globally indicating a synchronized upswing for some 18 months now. The US began to slow in Q1 and now some softness is appearing in data in Europe and Asia as well. This appears to be a mild, cyclical slowdown as opposed to something more fundamental and persistent. The growth is sufficiently strong that the Fed and PBOC are now reverting to neutral and may tighten in future. The recovery in Japanese growth is yet weak and together with the size of the national debt, will likely not see the BoJ shifting even to neutral. There are signs of some divergence in Eurozone growth that the ECB will similarly not be in a position to shift to neutral, let alone tighten. The ECB has probably been misunderstood and is facing technical difficulties with QE, which will probably see QE tapered but replaced by policy of similar accommodation. In any case, the ECB made no definitive statement, maintained the current status quo and deferred any monetary policy decisions to the October 26 meeting.

The implications of the above are that investors should not be too bearish duration in any currency, and that recent EUR strength (and conversely USD weakness) could be overdone.

And while we note the strength in economic data, we also note the first and early signs that growth may be decelerating as indicated by slightly softer high frequency PMIs. Recent data have indicated an incipient shift towards domestic growth away from trade, a theme we witnessed from 2011 – 2015. Since then trade, manufacturing and commodities have rebounded. We hope that we do not return to the insidious dynamics of trade war and that the current downturn is just a correction.