Why one bank has stopped recommending loading up on stocks

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It’s pro basketball season again, and if there’s one thing that coaches always yammer on about, it’s transitioning from offense to defense.

Barclays is also making a transition from offense to defense. Why? After all, points out Ajay Rajadhyaksha, head of macro research at Barclays, the aggressive call has worked, even with a bond market rally. U.S. and European stock markets have climbed between 17% and 23% this year while the Bloomberg Barclays Global Aggregate index, which tracks a basket of government, corporate and asset-backed bonds, rose 6%

But the news flow on trade and data has clearly worsened. There are more tariffs now than three months ago. Every major economy is seeing an industrial and manufacturing slowdown, with Germany and Italy on the verge of recessions. Global trade volumes are falling and China’s economy has downshifted.

Rajadhyaksha said 2020 isn’t likely to be better. “With U.S. stimulus effects fading, Europe’s policy cupboard mostly bare, the drag from tariffs yet to fully hit trade, and China unlikely to ride to the rescue, where will upside growth surprises come from,” he asks. That said, Barclays is not forecasting a recession. “Services the world over are still expanding. Global labor markets are in decent shape, even if job growth has slowed, and consumption should continue to support the world economy,” he says.

In the call of the day, Barclays now prefers global fixed income over global equities. U.S. equities are fairly valued but face “asymmetric” risks (when the downside risk is unequal, or greater, than the reward). Within stocks, the bank is overweight healthcare, software and the FANG stocks (Facebook, Amazon, Netflix and Google which is owned by Alphabet), and underweight utilities and real estate, energy and materials and financials. Rates on short-term bonds should move lower, and among other suggestions in the bond space it recommends 5-year U.S. Treasurys . It expects a sharp depreciation in the British pound to accompany the initial stages of a no-deal Brexit before a partial rebound by the end of 2020.

The markets

A day after a 163-point gain on the Dow fueled by President Trump’s remark that a deal with China could come sooner than you think, U.S. stock futures leaned higher.

Bond yields edged lower, while gold was steady.

The optimism over trade lifted stocks in Asia and Europe.

The buzz

The impeachment inquiry will get the lion’s share of the headlines, with the Washington Post reporting a whistleblower alleges that White House officials moved the records of some of Trump’s communications with foreign officials onto a separate computer network. White House officials said the call memo does not show the president seeking any quid pro quo, the report said.

On the trade front, China’s government says importers have agreed to buy American soybeans and pork.

Fed Vice Chairman Richard Clarida speaks at 11:45 a.m. Eastern, while across the Atlantic, a European Central Bank official quit without explanation. Peloton Interactive the technology company that sells exercise machine, starts trading Thursday after pricing its initial public offering at $29 per share, at the top end of the targeted range. See 5 things to know about the Peloton IPO.

Beyond Meat rallied as McDonald’s says it will trial a plant-based burger. U.S.-listed shares of Pearson may lose ground after a profit warning from the education publisher.

The chart

Typically, the ratio between high-yield and investment-grade bond spreads tracks the ratio between large-cap and small-cap stocks. That’s not the case now, as the chart shows, with investors showing a strong preference for large-cap stocks at the moment while not making a similar shift to highly rated bonds. UBS said it takes “some confidence” in the resilience of corporate credit and feels “emboldened” that there isn’t a recession coming.

Random reads

Saudi Crown Prince Mohammed bin Salman spoke for the first time about the murder of Jamal Khashoggi inside a Saudi consulate.

Chinese technology companies are investing in pig farms.

Jacques Chirac, who famously opposed the Iraq war as French president, has died.

A chief executive of an Idaho company surprised employees by giving them an immediate $10,000 pay rise.

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