Key events in developed markets

Three rate cuts in 2019 and a trade deal appear to have underpinned markets, but the economic backdrop remains mixed. A stronger housing market is supporting residential investment, but capex in general remains subdued while consumer spending growth has moderated. This should be evident in this week’s GDP report. Meanwhile, although US-China trade tensions have eased, this is yet to feed into US manufacturing, and the risk of an escalation in US-EU tensions remains. Throw non-threatening inflation in the pack and the Fed is likely to reiterate a message of stability in monetary policy for now. Looking further ahead, the risks appear skewed towards lower interest rates rather than higher given that a catalyst for a broader economic upturn remains elusive.

It’s a close call, but we think Bank of England policymakers will opt against cutting interest rates next week. Sentiment indicators have virtually all improved since the election result, with business optimism and new orders turning higher. Admittedly we aren’t convinced this will last given the myriad of risks linked to trade talks this year, and that may see up to four MPC members vote for easing at this month’s meeting. But we think most policymakers will remain comfortable with their previous ‘wait-and-see’ stance and we think the most likely outcome is an ‘on hold’ decision. Read more here.