November Economic Update: Trading the positives
Whether it’s US-China trade or Brexit, the political newsflow has taken a tentative turn for the better over recent weeks. But it may be too soon to sound the all-clear, and political risks could easily flare up again as we move into 2020. That means the slowdown in the global economy probably has further to run
November Economic Update: Trading the positives
US activity is slowing, and while the Fed has signalled it’s taking a breather, we think it’s only a matter of time before we get further rate cuts. The European economic story is not dissimilar, but unlike the US, policy stimulus – be it monetary or fiscal – appears to be less forthcoming.
Encouraging news from the trade front
Markets rallied earlier this week on signals that a de-escalation of the trade war is in the making. But risks are still tilted to the downside.
US: The job’s not done
Three interest rate cuts and easing trade tensions have calmed fears about a potential US recession, but we think the market's reaction is excessive. With the economy decelerating and politics likely to remain a source of uncertainty, we believe the Federal Reserve has more work to do to ensure a slowdown doesn’t become more severe.
Eurozone: Looking for the trough
At 0.2%, quarter-on-quarter third quarter eurozone GDP growth came out better than expected. However, the economy continues to decelerate and it looks as if the trough in the current slowdown might still be a few months away. With a new president at the helm at the European Central Bank, monetary policy is unlikely to change over the forecasting period.
UK & Brexit – Why 2020 could be just as uncertain as 2019
The Brexit outlook looks very uncertain, regardless of who wins December's unpredictable general election.
China: Trade war vs 5G
While the US-China trade dispute is unlikely to be fully resolved next year, 5G infrastructure and services will be a new growth engine for China's economy in 2020.
Japan: What goes up
Japan is now heading into a period where the data will cease to have much meaning. It will be some months before we can see how it has weathered the latest consumption tax hike.
FX: Dollar remains in demand
The dollar had its worst month of the year in October, selling off by close to 2%. It is tempting to call this the top, but even if it is, the case for a higher EUR/USD is not particularly strong right now.
Rates: Blinkers on en route to 2%
The market is sniffing a reduced recession risk. The comfort blanket of consecutive rate cuts by the Fed has helped. But the catalyst for change has come from politics. In consequence, core curves are re-steepening. With the US 10-year in this mood, we will likely see a test of 2% before we get back to testing for lower yields again.
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