Forecasts for the USA raised
For some time now we have seen a wealth of factors that actually point to a contraction in the US economy. These include the recent rise in interest rates, the well-filled warehouses and a fiscal policy that is likely to be less expansive. Nevertheless, the economy in the USA has developed quite robustly so far. Looking ahead, we must recognize that bullish stocks and rising home prices are likely to increase Americans’ net worth and stimulate spending. We are taking this into account by continuing to expect the US economy to weaken. However, we no longer expect a recession and have increased our forecast for GDP growth in the current year from 1.0% to 2.0%. Against this background and in view of the latest inflation developments, we have also increased our forecast for US inflation in 2024 from 2.5% to 3.0%. However, we only expect the decline in inflation to be delayed and not a trend reversal.
Nervous bond markets
Bond yields in Europe and the US went on a bit of a roller coaster ride last Thursday and Friday. In the end they were trading lower than they were in the middle of the week. We can only understand the respective twists to a limited extent. The inflation data for the euro area published on Friday showed a decline in the inflation rate. However, the decline was smaller than economists had expected. Bond yields nevertheless fell following the publication. With no further news, they climbed again in the afternoon, only to fall again in response to a disappointing ISM Purchasing Managers Index. The economic indicator for manufacturing in the USA fell from 49.1 to 47.8 points. A further slight increase was expected. Even if in this case the direction of the market movement fits the news, the sharpness of the decline in yields surprises us. The market appears nervous and appears to be tilting – for now – towards falling returns. The stock markets were happy – if there was even a need for a good mood. Meanwhile, the new trading week offers enough tangible impulses.
The new week has it all!
Today, Monday, there is still little market-moving data. However, in an unusual move, the US Supreme Court added to its calendar yesterday and announced that it would announce a ruling today. This caused speculation that it could be the Supreme Court’s decision on Donald Trump’s election. Tomorrow, Tuesday, sees the start of the Chinese National Congress, the purchasing managers’ indices for the services sector in Europe and the USA, and the so-called “Super Tuesday” in the primaries in the US presidential election campaign. Democratic and/or Republican primaries will take place tomorrow in a total of 15 states. On Wednesday, Fed Chairman Jerome Powell will deliver his semi-annual financial report to Congress. The next ECB interest rate decision is due on Thursday, and on Friday the US labor market report for February marks the end of an eventful week. In addition, the reporting season for companies continues – although at a much slower pace than last time.
