Chart of the Week - Growth Reacceleration

Reacceleration risk is rising as Monetary Policy goes from headwind to tailwind...

As more and more central banks move into rate cut mode, monetary policy is going from headwind to tailwind — and that has key implications for the global growth outlook in the second half of 2024.

Earlier in the year I mused upon the prospect of “Reacceleration Risk“ — that after a clear and significant slowdown in global trade and manufacturing, things were set to reaccelerate (can’t really call it a recovery since there was no official recession!).

Since then, we’ve seen as a minimum no new incremental monetary headwinds, outright shifts to rate cuts (e.g. ECB, SNB, BOC), and a general easing of financial conditions. This by itself is a key support to the case.

The other elements supporting the case are the inventory cycle (firms ran down inventories during the rates/inflation shock and recession scare, now need to order more), generally resilient services, recovering real incomes (fading cost pressures), and improving economic confidence.

Indeed, on that last note, the ephemeral animal spirits aspect could be a key driver to this macro-risk scenario and an important determinant as to whether it is just a rebound vs more fulsome reacceleration that results in growth re-heating and inflation resurging.

As for the investment implications: substantive reacceleration in growth, re-heating of the economy, and resurgence of inflation will likely see upward pressure on bond yields (even if cash rates come down a little), tailwinds for old cyclicals (energy, materials, industrials, financials) — and potentially trigger a rotation from tech to some of the previous out-of-favor and relative value standouts that would benefit from this theme: e.g. value vs growth, small vs large, global vs US.

On the face of it, an improvement in growth would be good, but the impact on markets would likely be mixed — rising volatility, and rampant rotation!

So definitely one to keep on the radar...

Key point:  Global manufacturing is set to reaccelerate thanks to monetary tailwinds.

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Topics covered in our latest Weekly Insights Report

Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation issues on our radar:

• Global Markets Pulse Check: equities, bond yields, credit spreads

• Commodity Technicals: short-term vs medium/longer-term outlook

• Macro Radar: key events and macro-technicals to monitor

• Monthly Asset Allocation Review: reminder +link to report

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Thanks for your interest. Feedback and thoughts welcome.

Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts

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