Trend growth versus fear trending

Posted by: Paul Donovan

27 Feb 2020
  • We have some sentiment opinion poll data in the form of European business and consumer confidence. Fear is the main economic threat at the moment, and that raises these second-tier releases to something markets really care about. However, both sentiment and financial markets tend to be driven by the media news cycle, and also tend to overreact. Caution in interpretation is advised.
  • US fourth-quarter GDP should show the economy operating a bit below its trend rate of growth. The details should continue existing trends. Investment spending was dealt a heavy blow by US President Trump's trade taxes. The consumer remains supportive.
  • The importance of the consumer (globally) is why fear of the virus has the potential to do so much economic damage. If fear is contained at current levels, the consumer will support growth. If fear takes hold in the real world, the economic damage will be significant. US President Trump gave a press conference to reassure Americans last night. US Google searches for "coronavirus" surged immediately afterwards.
  • The interminably tedious UK-EU divorce process continues, with extra table thumping theatrics today. The UK government will lay out its "red lines" in negotiations with the EU. The EU negotiator already started thumping tables yesterday.

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