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Slowing Economy Won't Plunge Into Recession

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By    |   Tuesday, 26 March 2019 01:05 PM

Financial markets in Asia, Europe and the United States have normalized to some degree in the wake of President Donald Trump seemingly being cleared by Special Counsel Robert Mueller of conspiring with Russia in the 2016 U.S. election.

Overall and for the moment, U.S. stock market indexes are all in positive territory with the Nasdaq components showing gains of over one percent of which the Nasdaq Bank Index gains over 1.30 percent.

The dollar index DXY is also up a little bit, to around 96.6750.

From my side I still believe that the dollar strength is set to continue for the time being. When we look at the technical indicators we see that the DXY continues to trade above its 200-day simple moving average, which confirms the DXY remains in a bull trend.

What comes now going forward in U.S. politics with, among other things, the Democrats having set a deadline next week on April 2 for the delivery of the full Mueller report to Congress, which is in fact part of what is called political wrangling, but which could go on for quite some time and even become harsh, but that under normal circumstances, financial markets don’t get too much, for not saying not at all, concerned about it, The Journal reported.

In the meantime, at this moment we have a lot of obsessional talking on that “recession” that is knocking on the door of the U.S. economy and also elsewhere, as an investor, I wouldn’t put too much weight on it and certainly not as far as the U.S. is concerned.

As far as I know, I can’t recall that the United States has ever “imported” a recession.

In the context of this, today in Frankfurt, Germany, Philadelphia Fed President Patrick Harker said in a prepared speech titled “On Balance: All Things Considered on the Road to Normal” gave some interesting remarks among of course a lot of other things:

  • Starting with GDP, I see growth a bit above 2 percent for this year, returning to trend of around 2 percent sometime in 2020. That reflects structural, slow-moving forces — like demographics, muted growth in the labor force, and lower productivity growth — rather than any temporary headwind.
  • Inflation is running around our preferred 2 percent target and, importantly, does not appear to be on a strong upward trajectory.
  • We are also seeing continued strength in the labor market, with employment data continuing to show remarkable health.
  • I still see the outlook as positive.

Philadelphia Fed President Patrick Harker concluded saying the fundamentals of the U.S. economy are strong, and we’re on the path to normal.

As an investor I would keep Harker’s words mind while remaining cautious when taking investment decisions.

Besides that, yesterday we got in the Netherlands the publication of the January CPB World Trade Monitor which is highly regarded worldwide. CPB stands for the Central Planning Bureau of the Dutch Government and delivers global economic analysis and forecasts.

The January CPB World Trade Monitor stated that developments in global international trade and industrial production January 2019 were:

  • World trade volume increased 2.3 growth month‐on‐month in January, up from “negative” growth of 2.1 percent in December.
  • Due to the U.S. partial shutdown that took place from December 22, 2018 to January 25, 2019, data on U.S. import/export values in January were not available, which is important to take into account when looking at all statistics and it’s clear that the February data will give us a more accurate overview.
  • World trade momentum was ‐1.8 percent (non‐annualized) and ‐1.0 percent in December.
  • World industrial production increased 0.0 percent month‐on‐month up from ‐0.1 percent in December, unchanged.
  • World industrial production momentum was 0.0 percent (non‐annualized) and 0.4 percent in December.

All this shows that the global economy is in a slowdown phase but is not heading into a global recession.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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All this shows that the global economy is in a slowdown phase but is not heading into a global recession.
global, economy, slow, recession
Tuesday, 26 March 2019 01:05 PM
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