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Yield curves in the US and Europe are inverted and/or interest rates on government bonds are extremely low or even at negative levels. This would be a reliable predictor of a recession in the past. Why are share prices still very high in this scenario?
Will Trump increase the chances of steady economic growth and consequently a stronger dollar? Or were the signs of a more moderate stance simply the flavour of the week and will the president go wild again, perhaps to take forceful action against Iran after the attacks on Saudi Arabian oil infrastructure?
The dollar has declined against the euro. We expect the decline to shift to an increase because the trade war is likely to continue, and the US economy is still in relatively good shape.
A no-deal Brexit would require negotiations on new trade agreements – in which the British economy would be far too small compared to the economies of the US, Europe and China and so on to have any significant impact. This would be a negative scenario for the UK economy and the pound.
There are growing doubts about the effectiveness of monetary policy while Eurozone weakness is mainly due to external forces. Can the ECB still make a difference and if so, will it do so next week?
Markets have become too gloomy about the prospects of the US economy. However, when growth starts surprising to the upside, Trump could use this to escalate the trade war.