10 to 16 December: Is a recession really in sight?


Markets have been bracing for a recession in the US , and as a result investors have been increasingly selling risk assets. The US Treasury curve has already semi-inverted, as the 2- to 5-year segment flattened, while the 10-year remains barely above the shorter maturities. Both stock and bond markets can be good indicators of future recessions, however, they can also give false signals. Paul Samuelson, a Nobel laurate economist famously quipped that ‘The stock market has called nine of the last five recessions.’ implying that stock markets can be overly bearish from time to time and signal incoming recessions at inappropriate times. We acknowledge the downside risks to the current economic cycle posed by the trade war and the tightening cycle of the Fed, and in addition, we recognise that this is one of the longest-running business cycles in modern economic history. Despite the aforementioned facts, we remain of the view that the US economy is unlikely to slip into a recession over the next 12-18 months, with our base case being a moderate slowdown of GDP growth.

The economic diary for the week ahead is loaded with relevant policy events and macroeconomic data releases. For obvious reasons, the Fed’s monetary policy decision, updated macroeconomic projection, adjusted dot plot and Chair Powell’s press conference are going to be in the limelight. Furthermore, the US authorities release the third print of the Q3 GDP data, and publish the November PCE inflation figure, i.e. the Fed’s preferred inflation gauge. On the other side of the Atlantic, the Bank of England is expected to keep the policy rate stable in the UK.

Within the EM universe, markets will need to digest several central bank decisions. Asian markets will primarily focus on the Indonesia and Taiwanese central banks’ monetary policy decision. In addition, Chinese President Xi gives a speech in which he might signal how the trade discussion between the US and China develops. Latin American investors will focus on the Q3 Argentine GDP release followed by the rate-setting meetings of the Mexican and Colombian monetary authorities. In Africa, the Moroccan central bank will deliver its policy decision.

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