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11/28/2017 Morgan Stanley predicts 2018 will be 'tricky' for global economies

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Morgan Stanley predicts 2018


will be 'tricky' for global
economies; says sell US
corporate bonds
Morgan Stanley's Andrew Sheets expects U.S. economic growth to moderate
as it moves deeper into the later innings of the current economic cycle.
In China, Sheets expects the economy to slow down amid policy uncertainty.
Sheets remains optimistic about the global economy so long as economies like
Brazil and India pick up the slack, "but this handoff will likely be tricky," he
says.
He also recommends selling U.S. corporate bonds in favor of their European
counterparts and buying U.S. energy stocks at the expense of consumer
stocks.

Fred Imbert | @foimbert


Published 5 Hours Ago | Updated 3 Hours Ago

by Taboola

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tighter monetary policy, could make for a "tricky" 2018, according to mistakes people
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Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said in a
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note Sunday he expects U.S. economic growth to moderate as the your day
economy moves deeper into the later innings of the current economic
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The U.S. and Chinese economies have grown at a strong pace in 2017. In
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the U.S., annualized GDP has grown at least 3 percent in each of the
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For 2018, Morgan Stanley forecasts U.S. GDP to grow by 2.5 percent,
1. lands in waters off
slightly above their 2.3 percent forecast for 2017, and China's GDP to Japans coast:
grow by 6.5 percent, below China's 2017 forecast of 6.8 percent. Sheets Japanese PM
said emerging markets excluding China are "central to this story, and
we see EM growth accelerating from 4.7%Y this year to 5.0%Y in 2018,
Here's why Arby's
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11/28/2017 Morgan Stanley predicts 2018 will be 'tricky' for global economies
Brazil's economy is expected to grow by 2.2 percent in 2018, according
to FactSet, as it continues to rebound from a 3.6 percent contraction in
2016. For 2017, Brazil's economy is expected to grow by 0.7 percent.
India's economic, however, hit a three-year low during the June
quarter, coming in at 5.7 percent. Growth in India has also been slowing
since early 2016, according to FactSet.
Novogratz:
3. Cryptocurrencies like
Sheets remains optimistic in the global economy so long as economies
bitcoin are going to
like Brazil and India pick up the slack, "but this handoff will likely be
be the biggest
tricky, and occurs against a backdrop of rising core inflation and less bubble of our
accommodation." lifetimes

Core inflation, which excludes food and energy costs from overall
Democrats have
inflation measures, is expected to rise in the U.S. next year, Sheets said. 4. already won the tax
Overall inflation in China, meanwhile, is set to rise to 2.6 percent by reform battle
fourth quarter 2018 from 2 percent this quarter, said Sheets.

Monetary policy, meanwhile, is expected to tighten around the world


next year. The Federal Reserve has forecast three interest-rate Democrats cancel
increases in the U.S. next year, and the European Central Bank is likely
5. meeting after Trump
to start rolling back its asset purchasing program. The Bank of Japan is says 'I don't see a
also expected to fine-tune its yield-curve control policy. deal' to prevent
government
"We'd note that all this will occur at a time when markets have rarely shutdown
been so confident about the predictability of the policy outlook," said
Sheets.

Central banks have been more prone to telegraphing their monetary


policy decisions to financial-market participants in recent years,

especially following the financial crisis.


Sheets recommends investors prepare themselves for this handoff by
selling U.S. corporate bonds in favor of their European counterparts,

which are better in quality and have low volatility.


He also recommends investors stay in global equities until the first
quarter of 2018, when "a better exit point" could present itself.

Conditions are still supportive for stocks near term, he said.

Global stocks have rallied sharply this year. In Europe, the German Dax
has risen 13.2 percent in 2017, while Japan's Nikkei 225 is up nearly 18
percent year to date. The S&P 500 is up 16.2 percent.

On a more specific basis, Sheets says investors should buy energy


stocks as they have "consistently outperformed in late-cycle
environments" and should dump consumer stocks, which face "poor
revisions, more structural disruption and is often a late-cycle
underperformer." Energy is the second-worst-performing sector in the
S&P 500 in 2017, falling 10.8 percent. Consumer stocks, in turn, are up
14.4 percent.

Disclaimer

Fred Imbert
Markets Reporter

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