Markets are looking to the future. A rebound in equity valuations since early October means many investors are already pricing in next year’s growth. Yet this improving sentiment is premature: there is no truce in the trade war, China is slowing, a no deal Brexit is still a live risk, factories are stagnating and, outside the US, central banks have used up much of their ammunition. The problems facing the world economy are unchanged. They could get substantially worse.
Monetary stimulus from the European Central Bank and US Federal Reserve, as well as positive noises about rolling back tariffs on China from US President Donald Trump, have reassured investors that the world will avoid a sharp downturn. This sense of relief helped the S&P 500 rise to a new record last week, while Germany’s Dax 30 index has risen 7 per cent since the start of October, as has the main Italian index. France’s CAC 40 is up 4 per cent.
Yet a mooted “interim” deal between the US and China has not yet become anything substantial. Instead, Mr Trump last week threatened to ratchet up tariffs on Beijing if no deal is struck soon. Chinese fixed-asset investment so far this year has been running at the lowest rate for two decades, raising the spectre of a deeper slowdown than anticipated in what is on some measures the world’s largest economy.