31 December to 7 January: The US’ economic outlook is not as bad as markets deem

 Although the holiday season usually implies boredom, this was definitely not the case last week, when asset prices exhibited excessive moves – especially in the developed market universe. Market players in the US have been focusing so much on the negative side of data releases and political noise that not only was stock market performance impaired, but rate hike expectations turned upside-down and transformed into rate cut expectations for the middle of 2020. As opposed to the implied stagnation of earnings for 2019 by some of the major indices (such as the S&P 500), we are of the view that the currently available soft and hard economic indicators do not imply a recession in the US throughout 2019 – only a slowdown. A slowdown should not come as a surprise to anyone, as it has been long known that the tailwinds by President Trump’s tax cuts would abate, while the monetary stimulus by the Fed would be continuously withdrawn. Furthermore, even the combined effect of trade talks between the US and China and the government shutdown in the US is not enough to trigger a recession in the world’s largest economy. We reiterate our view that the US’s economy will continue grow this year, which in turn will allow the Fed to carry on with the tightening cycle.

Although the monthly US jobs report is behind us, the calendar is stuffed with relevant data releases. Namely: the market will likely closely gauge the ISM non-manufacturing index from December and will also eagerly scrutinise the minutes from the Fed’s last monetary policy meeting. Furthermore, Fed Chair Powell gives a speech on Thursday, while the December CPI inflation measure will be revealed on Friday. The economic diary is lighter in Europe, where the Eurozone retail sales figure and the UK monthly industrial production and GDP statistics are scheduled.

Within the emerging universe, Asian markets will mainly focus on Chinese CPI and PPI inflation from December. In addition, a delegation from the US visits Chinese policymakers to continue trade talks. Meanwhile, within the Latin America space, CPI inflation data will be published in Chile, Mexico, Argentina and Brazil, while the Peruvian central bank decides on the policy rate. African markets will monitor the latest PMI and manufacturing data from South Africa and inflation from Egypt.

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