Bill Gross’s PIMCO outlook for 2019 makes interesting reading perhaps more so because its co-founder, Bill Gross has recently announced his retirement after four decades from the investment world.
Bill Gross, 74 who has been a pioneer in fixed income investing where he co-founded the world’s largest fix income fund PIMCO and then branched out on his own with Janus Henderson Investors. “I’ve had a wonderful ride for over 40 years in my career,” said Bill Gross in a statement. “I’m off — leaving this port for another destination with high hopes, sunny skies, and smooth seas!”
“I’ve had a wonderful ride for over 40 years in my career… I’m off, leaving this port for another destination with high hopes, sunny skies, and smooth seas!”
So with the one time bond king leaving for “sunny skies and smooth seas” what then is Bill Gross’s PIMCO outlook for 2019?
Bill Gross’s PIMCO outlook is less of a benign port. The world largest fix income investment fund is forecasting tighter global financial conditions and increasing economic and political uncertainties clouding 2019. Bill Gross’s PIMCO “expects world GDP growth to slow somewhat but remain above-trend at 2.75%‒3.25% in 2019”.
But Bill Gross’s PIMCO outlook was published December 31 before the Fed, the world’s central bank by default announced a policy U-turn on monetary tightening at its Federal Open Market Committee (FOMC) recent meeting (29-30 January).
Fed’s capitulation has been a game changer for investors with stock bears now in retreat.
While the Fed has announced its intention to continue providing the market with liquidity that too is not without risk. Fed’s credibility could be near breaking point should another crisis arise, particularly if investors have an alternative outside a dollar-centric world. Ratcheting up the metaphoric money printing press through an asset purchase program, known as quantitative easing, does have consequences as investors have seen in the last 2008 financial crisis. Signs of a Fed’s loss of credibility would look like a USD collapse and spiraling treasury yields and at the moment there are no signs of that happening.
“expects world GDP growth to slow somewhat but remain above-trend at 2.75%‒3.25% in 2019”
PIMCO – outlook 2019
Bill Gross’s PIMCO outlook for 2019 for increasing economic and political uncertainties remains on the radar
US-China trade war could worsen with the US Trump administration raising the tariff rate on $200 billion in Chinese imports from 10 percent to 25 percent. If so. That could lead to higher inflation, assuming that the Chinese yuan doesn’t depreciate by a similar amount.
In Europe, the outcome of Brexit, Britain scheduled to leave the EU on the 29 the of March remains unclear. Will, there be a soft Brexit, a hard Brexit or will there be a Brexit at all? Meanwhile, the EU is neither a bedrock of political stability with the ongoing French yellow vests protests and European election scheduled to take place 23rd of May, 2019. German Chancellor Merkel will soon be gone and France’s Macron is probably already spent so who will hold the EU together when the two main Europhiles have left.
Less of a concern is inflation which is tipped to fall, according to Bill Gross’s PIMCO outlook for 2019
“We expect inflation globally to fall to 1.75%−2.25% from about 2.3% in 2018 due to the recent plunge in oil prices and continued below-target inflation in the U.S., Europe, and Japan” PIMCO.
The world’s largest fix income fund also believes that economic divergence of 2018 – the U.S. accelerating and other regions slowing – will give way to a more synchronized deceleration, with the US, the eurozone and China all seeing lower growth than in 2018.
US fiscal stimulus of 2018, which funded corporate stock buybacks, has mostly been spent in 2018 and its impact will start to fade in 2019.
“Growth momentum is likely to moderate during the year, converging to trend growth of just below 2% in the second half” – PIMCO, outlook 2019
Bill Gross’s PIMCO outlook is for US expansion to slow to a below-consensus 2.0%–2.5% range in 2019
PIMCO believes the fall in US economic growth of 3% achieved in 2018 will be due to the recent tightening of financial conditions, fading fiscal stimulus and slower growth in China and elsewhere. “Growth momentum is likely to moderate during the year, converging to trend growth of just below 2% in the second half”.
Bill Gross’s PIMCO outlook for 2019 is for a sharp drop in inflation
“Headline inflation looks set to drop sharply over the next several months, reflecting base effects and the recent plunge in oil prices, while core CPI of about 2% is expected to trend sideways. We expect one or two more increases in the fed funds rate by year-end 2019, with a high chance of the Federal Reserve pausing or even ending the hiking cycle in the first half ”, said PIMCO.
“if the euro appreciates versus the U.S. dollar, the ECB may leave rates unchanged until 2020” – PIMCO, outlook 2019
With respect to the eurozone Bill Gross’s PIMCO is forecasting economic growth to decelerate below 1.0%–1.5% in 2019 from close to 2% in 2018
Core consumer price inflation is expected to pick up in 2019 from 1%. But Unemployment is likely to keep falling with wage growth accelerating.
Bill Gross’s PIMCO outlook is for 2019 one rate increase in the second half of 2019 with the European Central Bank (ECB) ending net asset purchases. Although, “if the euro appreciates versus the U.S. dollar, the ECB may leave rates unchanged until 2020,” said PIMCO.
With regards to the UK Bill Gross’s PIMCO outlook is for the UK economy to experience real growth in the range of 1.25%–1.75% in 2019, provided that a chaotic no-deal Brexit is avoided
Consensus inflation is expected to come back to the 2% target over 2019. Import price pressures are expected to fade and weak wage growth is expected to keep service sector inflation subdued. “We see one or two rate hikes from the Bank of England over the next year (2019),” said PIMCO.
Bill Gross’s PIMCO outlook for Japan is GDP growth to be moderate at 0.75%–1.25% in 2019, core inflation is likely to creep up only slightly to 0.5%‒1.0%, well below the 2% target and PIMCO doesn’t expect the Bank of Japan (BOJ) to raise interest rates. “We anticipate further tapering of bond purchases and further steepening of the yield curve as the BOJ tweaks its buying operations,” said PIMCO.