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Market Weekly Insights: January 28 - February 1, 2019

Summary

Shutdown: A great deal of economic data was not released during the shutdown.

Fed: no rate increase is likely from the current 2.375% level.

European Central Bank (ECB): “risks have moved to the downside”.

Shutdown

  • Estimates vary widely as to the economic damage done by the shutdown. Nevertheless, I imagine no more than a 0.25% upfront hit to annual GDP. While workers will receive all of their back pay, this does not restore the lack of output by those workers in the meantime.
  • A great deal of economic data was not released during the shutdown. This will be addressed over the coming days, culminating in a Q4 GDP release later in the week.
  • U.S. Q4 GDP is forecast to rise by 2.6% annualized according to the Bloomberg consensus, and by 2.7% according to the Atlanta Fed nowcast.

Fed

  • For this Wednesday January 30th, no rate increase is likely from the current 2.375% level. In fact, the market has its doubts about any rate increases at all in 2019. The Fed would still like to sneak in a rate hike should the opportunity present itself, though it is decreasingly likely that the timing will be in the first half of the year.

European Central Bank (ECB)

  • Notwithstanding the official end of quantitative easing at the close of 2018, the ECB delivered a dovish message at its meeting last week, acknowledging that “risks have moved to the downside”.
  • Although its growth forecasts are unchanged for the moment, there seems a high probability that these figures will have to be revised down at the next opportunity, particularly given the recent Eurozone PMI reading.