Market Outlook July

illustration photo
Continued overweight in equities.
Following the G20 summit held last weekend in Osaka, it became clear that the US and China will return to the negotiating table after a meeting between Trump and Xi Jinping. A joint declaration from the G20 members acknowledged that protectionism and tariffs have been intensified, but did not discuss protectionism and tariffs in specific terms. The members also agree that they will strive to maintain fair free trade. Sceptics, on the other hand, point out that it may take a while for a trade agreement to actually materialise. Some also believe that the parties are too far apart, so that the negotiations will collapse once again. Nevertheless, the general tone of the meeting still seems positive. The initial concessions are:
  1. Huawei will be allowed to buy standard components from US companies.
  2. It is explicitly stated that a solution to the Huawei problems will be reached at the end of the negotiations.
  3. Restrictions towards Chinese students studying in the United States will be eased.
  4. China will increase imports from American farmers.
  5. The US will suspend further increases in tariffs indefinitely.
Trump has a strategic upper hand in the negotiations as the US exports to China amount to only USD 120 billion, whereas imports from China total USD 540 billion (both figures are from 2018). In the short term, however, Trump has to take into account other limitations that we believe will release some of the negotiation pressures:
  1. Trump has announced his candidacy for re-election in 2020.
  2. A downturn in the US economy is likely to prevent his re-election.
  3. Polls show that he has a lower than average popularity compared with former presidents in their first election period.
  4. Xi Jinping’s presidency is indefinite; he can wait for the next president.

Fixed income

The about-turn of the US Federal Reserve (Fed) at the monetary policy meeting on 19 June contributed substantially to this. The Fed downgraded its growth prospects from ‘solid’ to ‘moderate’ and opened up for interest rate cuts if warranted. Thus, rate cuts are a possibility as early as at the end of July. It may also seem that several market players are calling to mind the Greenspan period (1987-2006) when the first rate cut was sometimes larger than the most recent rate hike. Up to four rate cuts of 25 basis points have now been priced in over the next twelve months. This approach seems somewhat aggressive, if the US negotiations with China on a trade agreement is back on track. In addition, the present Fed Chair, Jerome Powell, has so far proved to be less market-friendly than his three predecessors, Yellen, Bernanke and Greenspan. We are therefore retaining our underweight position in global corporate bonds.  Norges Bank raised the key policy rate to 1.25 per cent in June, as expected. The most recent forecast for the interest rate path indicates up to two rate hikes in the second half of the year. The fixed-income markets are pricing in slightly less, as the situation may become challenging if most other central banks are in a rate cutting mode. Based on this, we are also retaining our overweight position in Norwegian bonds.  The central banks in Australia, Chile, India, Iceland and Russia also reduced their key policy rates in June. In summary, there are few signs of galloping inflation that will cause the central banks to curb growth with rate hikes in the foreseeable future.


Global equity markets rose almost six per cent in June, currency effects not included. The trade conflict, weakened global growth prospects and a fall in global long-term bond yields have caused many investors to rotate into defensive equity sectors with stable earnings. With the US and China returning to the negotiating table, the Chinese financial and monetary stimuli (discussed in previous market outlooks) and the fact that many central banks are now taking steps towards a more expansive direction in the monetary policy, we are upgrading the materials sector to an overweight position:
  1. The materials sector is highly sensitive to cyclical fluctuations in the economic situation.
  2. Commodity prices respond quickly to changed growth prospects.
  3. The materials sector benefits from Chinese stimuli.
  4. The materials sector correlates strongly with the growth markets.
  5. DNB Markets is increasing the diversification in cyclical sectors as our exposures are primarily concentrated in developed countries.
  6. The materials sector is strategically important as, for instance, China has considered restricting access to rare soil types.
We are moving to an underweight position in the healthcare sector.  The sector has a high exposure to a regulated and costly healthcare system in the US, which accounts for much of the sector's defensive profile. An ageing population and higher life expectancy makes the healthcare sector attractive in the long term. In the short term, however, campaign initiatives from Bernie Sanders and other democrats have had an unfavourable effect on the sector. Trump has previously also posted critical tweets aimed at the industry, and this means that the political risk is periodically significant.


This presentation, report or other material attached to it (the “Information”) is prepared by DNB Private Banking, DNB Bank ASA. DNB Private Banking is a division of the business area Wealth Management. DNB Bank ASA is part of the DNB Group. This Information is intended for the recipients only and is not for re-distribution. Persons receiving this Information must not further distribute or send this Information in or into the United States, Canada, Australia or Japan. Any re-distribution of this Information may constitute a violation under the relevant national securities laws.

The Information is intended as general guidance only and should not be relied upon as legal, financial, commercial, tax or accounting advice. The Information is further not intended as a personal recommendation of any kind, and does not constitute personal investment advice. The recipient of this Information must not make any strategic decisions on the basis of this Information, and should make their own individual assessments of whether any strategies or concrete actions are suitable or appropriate. Such independent own-assessment should be based on the recipient’s relevant knowledge and experience, financial situation and investment objective. If deemed relevant, each recipient of this Information should refer to its legal, financial or commercial advisors for specific and detailed advice.

DNB Private Banking does not warrant that the Information is exact, correct or complete, and does not undertake any obligation to update the Information. DNB Private Banking does not accept any responsibility for direct or indirect losses that are due to the interpretation, and/or use, of this Information.

DNB Private Banking and the DNB Group have incorporated internal rules and regulations in order to avoid, prevent or handle any potential conflicts of interest. DNB Private Banking or DNB Asset Management AS, a part of the DNB Group, or other entities within the DNB Group receive inducements or retrocessions when distributing mutual funds, vehicles for collective investments and other financial instruments and financial products. The inducement or retrocession will depend on the agreements with each management company or product contractor. DNB Private Banking or DNB Asset Management AS will generally receive a higher amount when distributing DNB-products than other external products.

Customers of DNB Private Banking will have access to a range of securities funds and other vehicles for collective investments managed by management companies outside the DNB Group. The selection of which external securities funds and vehicles for collective investments made available to clients is performed by DNB Asset Management AS.

Management Companies with whom DNB Private Banking has entered into a distribution agreement with may be customers of the DNB Group.

DNB Bank ASA is registered in the Norwegian Register of Business Enterprises (NO 984 851 006) and is under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet). Details about the extent of our regulation by local authorities outside Norway are available from us on request.