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TheU.S.economyisonsolidground,buttheglobaleconomyhasntturnedacorner
yet.
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88% whovotedfoundthishelpful

TheU.S.economyandsomeeconomiesinEuropeare
onsolidground.Buttheglobaleconomyhasntturned
thecorneryet,hamperedbyinstabilityinChinaand
theambiguityaboutwhatsnextforU.S.monetary
policy.Giventhesecrosswinds,itsnottimetomake
biginvestmentmoves,accordingtoLisaEmsbo
Mattingly,Fidelity'sdirectorofassetallocation
research,inherlatestViewpointseconomiccheckin.

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EmsboMattingly:Ibelievewhatwereseeingisa
taleoftwoeconomies:TheU.S.economyandsome
economiesinEuropeareonsolidfooting,butatthe
sametimeweareinthemidstofaglobaltraderecession.Commodityprices,oilprices,andthe
weaknessoftheChineseeconomyareworrying.Chinasweaknessisbeingreflectedthroughoutthe
industrialsectorofthedevelopedworld.

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EmsboMattingly:Itshardtotellwhethertheworstisbehindusornot.Thepropertysectorisan
incrediblyimportantdriveroftheChineseeconomy,andtherearesomesignsthatthingsare
stabilizingthere:Salesarepositiveonayearoveryearbasis,andhomepriceshavestartedtorebound,
particularlyinbigcities.
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Butatthesametime,landacquisitionsaredown35%yearoveryear.Tome,thatsaglasshalffull,
halfemptystoryonproperty.Atthispoint,thejurysstillout.
Lookingattheindustrialsector,ourproprietarymeasureofindustrialactivitywasatextremelylow
levelsinthefirstquarteroftheyearatorbelowthelevelswesawin97and98,andagainin08and
09.Inotherwords,onparwiththeworstyearsinrecentmemory.Ifyoufastforwardtotoday,that
sameindicatorisnowup,thoughoffthatverylowbase.Thismightbeasignthatindustrialproduction
isstartingtostabilizeandrebound,andthatthestimulusisstartingtohaveapositiveeffect.
Ontheotherhand,labormarketindicatorsandconsumerindicators,whichheldupverynicelyinthe
firstandsecondquarters,havegottenveryweakinthethirdquarter.Theseweaknessesinthe
propertyandindustrialsectorsarebeingreflectedintheChinesestockmarket.Thefalsestartona
currencynormalizationinAugustcreatedyetanothershockthroughtheglobalsystem.
Thatsaid,theresagoodchancethatChinaseconomicactivitymaystabilizeinthenearterm.Apolicy
responseoutofChinatoaddresssomeofthisweaknessisexpected.Ivealreadystartedtoseesome
incrementalactions,includingtheeasingofpropertyrestrictionsandfiscalstimulus,forexample.I
expecttoseemoreofthisinthenextfewweeks.

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EmsboMattingly:MonetaryandfiscaleasingoutofChinaatthesametimeascontinuedeasingin
theeurozoneandJapanmaybewhatturnsthetidefortheglobaleconomy.Ithasnthappenedyet,
butifthingscontinueonthistrack,insixor12monthsthingscouldbeverydifferentfromthecurrent
environmentwherethedollarisstrong,emergingmarketsareweak,andcommoditiesareslumping.

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EmsboMattingly:Therearebothpositivesand
negatives.Onthenegativeside,weaknessinChina
affectstheindustrialsideoftheeconomy,asglobal
demandforU.S.exportssoftensandtherisingvalueof
thedollarhurtsthecompetitivenessoftheU.S.
manufacturingsector.Buttheconsumerstillplaysa
muchbiggerroleintheU.S.economythanthe
manufacturingsectordoes,andtheU.S.consumer
generallybenefitsfromastrongdollarandweakoilpricesexcept,ofcourse,inthosehighlyenergy
dependentareasofthecountry.

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EmsboMattingly:WiththeU.S.dollarsoaringandoilpricesandglobalmarketsplunging,Ithinkit
wasprudentfortheFednottoraiserates.Thatsaid,theannouncementsphrasingwasproblematicfor
markets.Traditionally,theFedlooksattwokeyfactorswhenmakingdecisionsaboutratesinflation
andthelaboroutlook.Thistime,theythrewinafactorthattheyhadpreviouslyclaimedtheydidnt
lookat:internationalconditions.Changingtherulesofthegamelikethatcreatesambiguity.
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EmsboMattingly:Ithinkthatsomeofthatdisappointmentismisleading,perhapsduetoseasonal
factors.Ifyoulookatthedetailsofthatreport,alotoftheweaknesswasintheyoungestagegroups,
whichmighthavebeenaffectedbythelateLaborDaythisyearascollegestudentsheadedbackto
schoollaterthanusual.
Thereportalsoshowedhourlyearningsasveryweak.Thisisanotherareainwhichwevebeenwaiting
forthetidetoturnforawhilenow.Ifglobalinflationgrowthstarts,laborpricingpowermaykickin,
resultinginwagegrowthaswell.
Itsalsoimportanttonotethatotherlabormarketindicatorsareverystrong.Initialunemployment
claimsareneartheirlowestlevelinfourdecades.Inshort,Imnotworriedaboutthelabormarket.

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EmsboMattingly:Forseveralquartersnow,theFidelityAssetAllocationResearchteamhasbeen
suggestingavoidingbiginvestmentmovesandkeepingalongdurationTreasurypositionasahedgeto
thedownsideriskemanatingfromChina.Theteamstillthinksitmakessensetoavoidbiginvestment
moves,butthathedgemaybecomelessimportantifChinaspolicyresponsesbecomemoreaggressive.

/HDUQPRUH
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Theinflationreport
Thelatestconsumerpriceindexnumbersmayhaveinvestmentimplicationsforyourportfolio.
Q42015marketupdate
Getinsightonwhatdrovevolatilityandwhymoremaybeaheadinourcomprehensivereport.
TakeawaysforQ42015
TheU.S.midcycleexpansionshouldsupportstocks;Chinasstrugglesmaydrivevolatility.
ViewallMarketsarticles

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