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As US data begins to filter through again after the bottleneck produced by the US Government shutdown, traders will get more meat on the bones as to how the US economy has been performing at a time where the rest of the world seems to have been suffering. With focus also on the US/China trade dispute, we consider the outlook for major global markets in forex, equities and commodities.
Global economic trends continue to deteriorate and central banks turn more dovish. After a decent recovery seen throughout January, the outlook for the bulls is beginning to tail off and could be ab out to go into outright decline again. In equities, major markets that are geared towards positive growth trends are rolling over. The German DAX is hugely export driven whilst the Japanese Nikkei reflects an outlook for Asia, but both markets have started to decisively correct again. Bond markets could well be telling us all we need to know. The 10 year German Bund yield recently fell to its lowest level since November 2016 whilst JGBs are seeming being allowed by the BoJ (which conducts yield curve control don’t forget) to move decisively below zero for the first time since late 2016. Bond markets appear to be taking a view as economic growth of Asian (namely China) and Europe (namely Germany) continues to deteriorate. What is not entirely clear amongst all of this is how the US is faring. The dollar has held up well as the US seems to be the best of a bad bunch currently. Inflation has been falling, but the labor market remains strong and earnings growth is decent, which should help the economy which is 70% driven by consumption. With the US government shutdown, there has been a lack of clarity on US data, but that clarity may begin to become more clear this week, with inflation, retail sales and industrial production numbers. Positive ISM surveys have helped dollar outperformance, but is the US about to be dragged down with the rest?
