Is the glass half full or half empty?

THE way we view the marco economic scene is synonymous with the title.

However, I reckoned we should lean more towards to the analogy of a ‘Glass Half Full’.

My reasons are as follows: the US has resumed a cyclical leadership on global growth and is likely to pull ahead of other major economies for the next few quarters.

Europe and Japan have not broken out of their 1Q soft patch, but domestic fundamentals still look solid in both areas.

We expect a modest slowdown in China in 2Q and 3Q, but also a policy response in 2H to prevent a sharp pullback in growth.

The global economy should grow at four per cent in 2018, a similar pace to 2017.

However, the expansion is less broad-based and more US-dependent than we had forecast at the start of the year, when data seemed uniformly upbeat.

Trade remains a tail-risk to our positive outlook. The tariffs discussed so far should not have a material growth effect.

But if the tit-for-tat escalations continue, markets could, at some point, downgrade growth expectations. We are less worried about the European politics; the periphery is much better poised to avoid contagion than in the past.

Risk assets have stared down a 1Q slowdown, political volatility in Europe, and rising US trade frictions.

To us, this highlights how supportive the macro environment remains.

Growth is decent, inflation pressures are contained, central banks have given more clarity on monetary policy, and corporate earnings are strong.

Apart from the macro backdrop, our market views are affected by two themes: US shortterm rates are among the world’s highest, due mainly to expectations of improved returns in the US.

This marks a rare instance of the world’s risk-free asset being among its best yielding.

Investors should stop worrying about what happens if the 10y Treasuries rises above three per cent. We do not expect a breakout in longer yields and believe supply fears are overdone.

But, even if we are wrong, any sell-off is likely to be limited and unlikely to cause a lasting riskoff.

We reckoned the oil rally is likely to remain stalled in 3Q, but the risk of any breakout is mainly to the upside.

As for local market scene, we reckoned the rising strength of the dollar is going to have an impact on our local currency market.

The persistent rise in US yields will exacerbate the plight of foreign holdings out of the country and reinvest in US shores.

As such, we could see foreign holdings continue to dwindle in the coming weeks which may affect sentiments on the local bourse.