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Illustration: Sarah Grillo/Axios
With leaders of the world's 2 largest economies signaling they have no intention of backing down from a drawn-out trade war, a rollback of the globalization model that has helped create record stock prices and company profits looks firmly in motion.
What's happening: President Trump's America First agenda is the biggest driver of this trend but far from the only one. Countries have been putting up new barriers to cross-border trade and investment since before Trump took office.
Why it matters: While many market strategists have been warning of the damage a reversal of globalization will do to asset prices, the market has yet to react meaningfully. That is a risk in itself, says Alan Ruskin, chief international strategist at Deutsche Bank.
The big picture: The ability of companies to conduct business globally has allowed firms to find new materials, reach new customers and outsource their largest cost — labor.
Its reversal is bad news for all parties involved, argue strategists at UBS, and includes a number of unexpected risks that could impact markets, such as reducing global demand for commodities like oil. That could knock as much as a percentage point off U.S. GDP because of America's new position as a major oil producer.
The bottom line: Vinay Pande, UBS' head of trading strategies, says a reversal of globalization's impact is worth "at least 20% in present value terms on the S&P 500."
Less than half of actively managed funds are beating their benchmarks this year, but that's the second-best rate since the financial crisis, according to data from Bank of America-Merrill Lynch.
Why it matters: Stock pickers have performed much better against their respective Russell indexes the last few years than they had in the years immediately following the crisis. However, they've had significantly less money to invest and less competition.
Some good news for active managers: "Stock-picking is making a comeback," notes Savita Subramanian, BAML's equity and quantitative strategist. "For the first time post-crisis, stocks are now more differentiated (less correlated with each other) than sectors are with one another, suggesting picking stocks matters more than picking sectors."
Investment in green assets — securities developed for climate and environmental projects — remains small, but growth is starting to pick up significantly, data from the Institute of International Finance shows.
While their asset volumes are still marginal compared to traditional U.S. mortgage-backed securities (which have averaged over $1.5 trillion annually in recent years) IIF notes that green MBS volumes have grown from a trickle of some $6 million per year 2012–2015 to much more substantial issuance. In 2017 and 2018, green MBS issuance averaged $28.8 billion a year.
What it means: Asset-backed securities (ABS) are groups of mortgages, credit card loans or other typically illiquid assets pooled together and sold as one security. Green ABS are all related to low-carbon assets like solar-powered systems or real estate loans in which the proceeds are used to finance green projects.
The British pound dropped to its lowest rate in 4 months against the dollar last week, and fell against the euro for 10 straight days, its longest losing streak since the euro was created.
Between the lines: Most analysts say the pound is reacting to the chances of a no-deal Brexit, but its movements suggest it's falling based on decreasing expectations of Brexit not happening at all (which would be positive for the currency).
Sterling has fallen against almost all of the world's major currencies, despite little in the way of hard data or commentary from Bank of England policymakers.
Interest rates are very likely to come down in Australia after the country reelected its conservative government in a snap election Saturday.
What's happening: Given last week's soft unemployment and inflation reports, "the Reserve Bank of Australia will have no choice but to cut interest rates next month and follow with additional easing in the fall," says BK Asset Management's Managing Director of FX Strategy Kathy Lien in an email to clients.
That will likely mean good news for Australia's stock market if it follows the pattern set by New Zealand's rate cut last month. New Zealand's stock market has been one of the only global benchmarks to remain in the green since Trump reinvigorated the U.S.-China trade war earlier this month.
The big picture: Australia would become the 3rd major central bank, following New Zealand and India, to cut rates this year. This was supposed to be the year of global quantitative tightening, but things are drifting in the opposite direction. Expect more central banks to cut rates as the year continues.