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John Butler
John Butler
Macro Strategist

Industry experience

With Wellington

19
13

As the investment team leader of the firm’s Global Macro Strategy effort and a member of the Global Bond Team, John leads our global macroeconomic strategy efforts and contributes to the management of global portfolios for the firm’s clients around the world. He focuses on macro forecasting & analysis and monetary policy for the UK and Europe, as well as the global cycle, translating key macro data into investable ideas and themes and working closely with investors around the firm.

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The Wellington Global Cycle Index1 points to an upturn in global economic activity but, in my view, even that positive prognosis is underestimating the bounce that’s ahead. Over the next six months, I predict that growth numbers almost everywhere will be exceptionally strong.

Where we differ from consensus

Almost all analysts now have the same broad roadmap for 2021 as we have — strong growth, with a gradual rise in inflation through the second half of 2021. All list the same set of risks: upside risks are attached to a full household-savings unwind and another round of fiscal support, while downside risks are attached to public health. All assume US growth leadership. What is striking is how there is actually very little discussion of inflation.

As economies reopen, it will be difficult for the market to distinguish between…

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Most of our inflation gauges suggest the figure is likely to fall towards zero in the next 6 – 12 months. But I think the ingredients are coming together to make higher global inflation (>3%) in the next 3 – 10 years more likely. I also expect the UK to be a bellwether for the higher longer-term inflation to come, given its recent history and the UK’s unique characteristics.

Six reasons why inflation should be higher in the next 3 – 10 years

I think there will be a series of negative supply shocks as there is likely to be:

  1. Less imported deflation due to stalling global trade and a larger services proportion of CPI baskets.
  2. A greater emphasis on local rather than global resources because supply chains will increasingly become localised and the government’s objective will be to protect national labour markets.
  3. Continued low productivity as governments will likely become more active at directing resources within economies and protecting…
MACRO
MARKETS
John Butler
John Butler
Macro Strategist
London

A lot of news has emerged from the euro area over the past couple of months. While that news has led us to reassess the risk of a euro-area break-up, it hasn’t changed our outlook for the economic cycle and our expectation of lower long-term growth for the region after the COVID-19 crisis.

Reassessing the risk of a euro-area break-up

Some of the recent developments have shifted the distribution around the risk of a euro-area break-up, pushing out the downside tail:

  • May’s ruling by the German constitutional court that the European Central Bank’s (ECB’s) Public Sector Purchase Programme may have violated the German constitution has not constrained the ECB, which has the tools to prevent a sharp widening in sovereign spreads over a protracted period.
  • In public, Germany and France are on the same page again.

Other developments have increased the probability attached to the upside tail. Specifically, Germany has taken the first steps towards…

 

MACRO
John Butler
John Butler
Macro Strategist
London

To be clear, no one can answer that question with any degree of certainty right now. There are still too many unknowns. But for my part, I have a hard time envisioning a scenario where the COVID-19 crisis does not leave an enduring imprint on the global landscape.

The global economy is reeling

By way of context, global growth is currently contracting at its fastest pace since the Great Depression hit in 1929. The range of potential outcomes is broad at this point, but I estimate that the economic fallout from the crisis has already shaved around 7% off global GDP, with more damage to come. Unemployment rates in most countries will likely rise by double digits as tens of millions of jobs are lost worldwide.

When might it turn for the better?

The timing of an upward turn in the economy will depend largely on the health care sector, particularly the race to find a COVID-19 vaccine, and the speed at which governments begin to…

CORONAVIRUS
MACRO
John Butler
John Butler
Macro Strategist
London

The ECB has taken much-needed action, targeting yields and spreads and providing full monetary financing of “whatever it costs” to address the coronavirus crisis. Now European governments need to deliver an appropriate fiscal response.

Late last night, the ECB announced an additional asset purchase programme:

  • It includes €750 billion of extra purchases.
  • This will run at least until the end of the year but potentially beyond if the coronavirus crisis persists.
  • Although over the duration it will adhere to the capital key (which reflects each country’s share of the EU’s population and GDP), the ECB can front load or deviate from the key for a particular country for a period of time.
  • The purchases will include Greek assets.
  • It will widen the eligible assets under the corporate-sector purchase programme to include non-financial commercial paper.
  • The ECB will consider dropping the 33% issuer limit.
  • And the ECB stands ready to expand the programme further.

This is clearly a move in the right direction, in my opinion, fundamentally changing the message from the ECB’s previous press conference. It is prepared to finance the cost of…

CORONAVIRUS
MACRO
John Butler
John Butler
Macro Strategist
London

The US-China tension is one very visible illustration of this reality, but this trend towards deglobalisation has been in place since the start of the financial crisis. For instance, it’s notable that global trade (as a share of global GDP) has been flatlining for 10 years now, after rising on a continual basis for over 30 years.

There will still be economic cycles, but this structural theme of deglobalisation is changing the nature of those cycles and the underlying trends they oscillate around. This is a clear frame break from the past and will be played out over multiple years. While we will likely see an ebb and flow, driven by the broader dynamics of the economic cycle, the path is clear and concerning for economic growth.

So where do things go from here? In this post, we share seven macro directions related to the theme of deglobalisation. The long-term investment implications of these trend breaks are clear, but over a cycle, how markets respond will depend on how policymakers respond. We believe these responses will likely vary across countries and be much less synchronised than in the past.

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