Dissecting the Market Disconnect

Exchanges

Goldman Sachs

Business

4.4 • 1K Ratings

🗓️ 16 July 2019

⏱️ 21 minutes

🔗️ Recording | iTunes | RSS

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Summary

With the US expansion now the longest on record and no shortage of risks on the horizon, growth uncertainty is Top of Mind. This uncertainty has been at the heart of the dovish pivot from central banks this year, which has generally helped push bond yields lower in anticipation of Fed rate cuts ahead, but equity prices higher. So just how concerned about growth should we really be? In this episode of the Top of Mind at Goldman Sachs podcast, Goldman Sachs Research’s Allison Nathan asks Bridgewater’s Ray Dalio, Goldman Sachs’ Jan Hatzius and others to weigh in. Dalio argues that recent price action makes sense given the Fed’s easier stance, but worries we’re pushing the limits of monetary easing, which—among other political and geopolitical factors—will ultimately bring about a negative shift in growth and markets. But Jan Hatzius argues that markets are perhaps too concerned about growth and not concerned enough about the direction of Fed policy, as the costs of easing now potentially outweigh the benefits. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	From Coleman Sachs research, this is Alison Nathan.
0:03.0	Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients.
0:14.0	In this episode, we're taking a look at growth uncertainty,
0:21.5	which has been on the rise given the age of the economic expansion,
0:25.2	now the longest on record, and risks from trade tensions,
0:28.4	as well as other political uncertainties like Brexit.
0:31.6	Here's Christine Lagarde, chairwoman of the International Monetary Fund
0:35.2	and newly nominated ECB president earlier this year.
0:38.3	The bottom line is that after two years of solid expansion, the world economy is growing
0:44.3	more slowly than expected and risks are rising.
0:48.3	Growth concerns have been at the heart of the Dovish pivot we've seen from central banks this year,
0:52.3	and markets and our economists alike
0:54.7	now expect the Fed to start delivering rate cuts as soon as this month.
0:59.1	Here's Fed Chair Jerome Powell testifying on Capitol Hill just last week.
1:03.2	At our June meeting, we indicated that in light of increased uncertainties about the economic
1:08.0	outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and muted inflation pressures, we would closely monitor
1:11.5	the implications of incoming information for the economic outlook and would act as appropriate
1:16.6	to sustain the expansion.
1:18.8	The market reaction to all of this has been noteworthy.
1:21.6	Typically, when growth concerns rise, investor demand shifts towards less risky assets.
1:26.2	That means investors usually buy bonds,
1:29.1	causing yields to decline, and sell stocks, causing equity prices to fall. But recently,
	...

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