Coming up to the USA’s federal government shutdown, the American economy was in acceleration mode. Although new data are scant, it appears shutdown will have more negative effect than originally forecast. Traders should be prepared for disappointment. The US yield curve continues to flatten; consumer sentiment has weakened. The chaos on Capitol Hill mirrors the real effect of the shutdown on American life.
Meanwhile in the EU, most of the negatives, especially weak German growth, have been priced in to the single currency. Moving forward we can expect a pick up. While the global economic backdrop is hazy, fiscal conditions are loosening. Germany’s ruling party has indicated tax cuts while France has rolled back its interest rate hike. This week the European Central Bank is expected to signal a rate hike for September 2019.
