Markets show ‘IMF is wrong’ on growth

International Monetary Fund Managing Director Christine Lagarde speaks to journalist Richard Quest during the opening session of the World Government Summit in Dubai, on February 10, 2019. (AFP pic)

SINGAPORE: The International Monetary Fund may be mistaken in cutting its economic forecasts, according to Evercore ISI.

The IMF on Tuesday lowered its global growth outlook to 3.3% for 2019 from a forecast of 3.5% in January.

Richard Ross, head of technical analysis at the research firm, says the predictions come as both markets and the world economy are showing signs of recovery.

“The IMF lowering its global growth outlook to the lowest since the financial crisis will be viewed in hindsight as a contrarian indicator,” he wrote in a note.

“The technicals suggest that global growth is poised to inflect higher and the backdrop for risk-taking remains strong.”

There are signs that the worst may be nearing an end. China bulls are increasingly confident that the country has turned the corner, while the US labor market remains at historically strong levels and the Federal Reserve’s dovish tilt is filtering through to the economy while inflation remains relatively benign. The S&P 500 Index is about 2% off its life-time high.

In emailed remarks, Ross cited the strong performance of cyclical assets such as gasoline, semiconductors, homebuilders and the Nasdaq-100 exchange-traded fund as evidence of an upturn, along with the collapse of credit spreads and volatility.

Copper is in a strong position to move higher as the US dollar eases, while emerging-market shares continue to trade above the 50-day and 200-day moving averages, Ross said in his report.

WTI crude could hit US$68-$74 a barrel if it moves above US$65, he added.

“With China/EM, EMFX, Europe, copper, crude, resources and cyclicals all inflecting higher against the backdrop of an accommodative Fed willing to allow inflation to overshoot, it is highly unlikely that the S&P is in the process of forming a bigger top,” Ross said. “The IMF is wrong.”