Green shoots. The third estimate of Third Quarter GDP growth was 2.1% and the Federal Reserve Bank of Atlanta projects Fourth Quarter GDP growth to stabilize at 1.8%. According to the Bureau of Labor Statistics (“BLS”), changes in total nonfarm payroll in the past three months were 156,000, 256,000 and 145,000, respectively, an average of 184,000 and in-line with the average of 187,917 for the 12 months prior. Despite all the consternation about the monthly jobs reports, subsequent to the Great Recession, job growth has averaged approximately 2.4 million per annum with very little variability. The 10-Year Treasury Note rose from 1.675% on September 30 to close out the year at 1.919%; economic optimism was also reflected in the spread between the 3 Month Treasury Bill and the 10 Year Treasury Note as it normalized during Fourth Quarter, moving from -16 bps to +36 bps.
Monetary policy stimulus continued unabated across the globe during the Fourth Quarter, with roughly 90% of central bank actions entailing rate cuts versus about 85% of such adjustments to the downside earlier in the year and only 35% reductions in 2018. Countries in the Index with central bank rate cuts during the quarter include Australia (-25 basis points/bps), US (-25 bps) and Hong Kong (-25 bps) in October, with Sweden an outlier by raising its benchmark rate in December (+25 bps). Yet the market value of negative-yielding debt moved steadily lower during the quarter, recently $11 trillion after peaking near $17 trillion in August, as the US/China trade negotiations seemingly progressed. Indeed, long-term sovereign bond yields roared higher during the quarter: US 10-year +25 bps to 1.92%, Canada +34 bps to 1.70%, Hong Kong +59 bps to 1.86%, Australia +36 bps to 1.39%, UK +34 bps to 0.83%, Japan +21 bps to -0.02% and Germany +39 bps to -0.19%, to name a few. Global property securities took a breather given this interest rate headwind, despite improving prospects for global trade/growth; save for Europe where the likelihood of a softer Brexit had an outsized positive effect on shares and currency. The IMF World Economic Outlook growth forecast for advanced economies is expected to remain tepid at 1.7% in 2020, largely based on “rising trade barriers”. That is, no recession in sight with growth likely to accelerate if the US and China resolve their trade dispute. At the same time, interest rates are expected to remain benign with the US FOMC expected to sit tight even if inflation breaches its 2% target. Notably, the fundamental outlook for property securities remains intact in a positive-growth/low-rate world.