Will the disruption of the geo-political status quo overwhelm or just delay the recent nascent signs of stabilisation in the global economy? To help answer this question, we canvass the recent US and domestic equity earnings seasons to see what light companies can shed on the macro economy.

Key points are:

  • Recent data suggest growth in the world economy slowed significantly in Q2 to 3.3% from its 4.3% pace just a year ago. The slowdown has been relatively evenly spread across both advanced and developing economies.
  • In Australia, a below-average reporting season reveals some tentative signs of stabilising consumer demand, without any evidence that a steadier housing sector is as yet positively impacting underlying activity.
  • In the US, the Q2 reporting season reveals a US economy that is reasonably firm, but one that has slowed. Conditions have clearly become more difficult, particularly for those importing inputs, while exporters have clearly fared less well than domestically focused companies who have benefited from a solid domestic US economy, particularly the consumer.
  • For now, the escalation in the trade dispute leaves us pivoting more defensively so we can assess developments ahead. Nonetheless, we continue to believe President Trump desires both a strong economy and a trade deal ahead of the November 2020 presidential election, and the rising noise in the US about a recession as the yield curve inverts may accelerate a trade de-escalation sooner than expected.