Policies of major central banks & other expectations

January 24, 2020

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As the month of January approaches its end, we can already say that it has been an astonishing year. War involving Iran was averted, the US president’s impeachment trial has begun, truce in the trade war has been delivered, and stock markets are already up by 6.7% in Australia. over 5% in Russia, 4% for the Nasdaq, over 3% for the Swiss SMI, and 2.5% for the CAC 40 in France. This arguably warrants some tactical profit-taking.

After the ECB’s inaction on 23 January, we expect the Fed too to stay put on 29 January. The Bank of England, however, could deliver a rate cut on 30 January. A string of weaker than anticipated data would fully justify such a move. However, Mark Carney hands over the reigns to Andrew Bailey on 17 March 2020, and this January meeting will be Mr Carney’s. It is conceivable that he prefers to leave any such decision to his successor, and to avoid acting before Brexit day on 31 January.

It is possible that the US Senate’s impeachment trial wraps up before the 3 February Iowa Democratic Caucus, especially if no witnesses are permitted. The US president’s State of the Union address is scheduled for 4 February. After super-Tuesday on 3 March, the Democratic front-runner should normally be known.

The US will publish its first estimate of Q4 2019 GDP on 30 January. The Bloomberg consensus sees 2.1% annualised, versus 2.0% annualised in Q3. The Atlanta Fed’s Nowcast stands at 1.8% as per 17 January, while the New York Fed’s version sees a lower 1.2% as per the same date. The US potential growth rate is now around 2% and any number below this level could lead to rate cut expectations, and the opposite too is true. It would take a significant and material change to the economic outlook before the Fed is likely to act in either direction.

The 4Q earnings season has started in the US and companies should report results in line or above analysts consensus (-1% YoY in both Europe and US). Despite strong results, US banks have recently lagged the overall market. The week ahead will see 142 companies reporting, including Apple, Microsoft, Facebook, Amazon and Boeing.

January 24, 2020

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