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Macroeconomic & Geopolitical

December Macro Dashboard

19 December 2019 - 15 min read

The announced Phase One trade deal between the U.S. and China, as well as the Conservatives increasing their majority in the U.K. election, has tempered two of the biggest political risks hanging over the global economy. At least temporarily, sentiment is turning optimistic.


Central banks are forecasting modest growth in their respective economies over the next three years.

  • U.S.—Economic growth is still slowing, but leading indicators for manufacturing have rebounded assuaging the fear of further downside risks and improving sentiment. Recession odds continue to fall as consumer fundamentals are still reasonable, the labor market remains resilient and trade tensions have been reduced. Fed easing is starting to feed through to activity measures, most notably in the housing sector.
  • Europe—There are early signs of stabilization in the euro area economy, but risks remain tilted to the downside. Manufacturing sentiment is showing signs of bottoming, especially in Germany. Consumer confidence and business climate measures seem to have stabilized, while investor sentiment has shown a modest recovery. Trade tensions and Brexit have been disruptive to economic activity, but those issues have ebbed recently. The Conservative victory in the U.K. election will likely create a path toward a negotiated Brexit settlement on January 31, rather than a no-deal exit.
  • Japan—Growth is expected to slow sharply in 4Q19 following the consumption tax hike. Core machine orders, retail sales and industrial production remain weak and housing, wages and credit growth are lackluster. Fiscal stimulus and an accommodative BOJ should offset some growth headwinds.
  • China—Growth prospects should get a lift from recent trade progress and early signs of manufacturing stabilization. Recent activity data has exceeded expectations, consumer confidence is high and rates remain historically low. The Hong Kong/China relationship remains tense as protests continue.

Central Banks

Global monetary policy is still very accommodative as central banks focus on downside risks.

  • Fed—FOMC updated its economic forecast at the December 11 meeting, signaling growth will slow and rates are on hold.
  • ECB—Expectations are that monetary policy will remain on hold for an extended time as a strategic review of policy gets underway.
  • BOE—Policy could remain somewhat neutral with a Brexit deal and extended transition to a new economic environment.
  • BOJ—A weak growth outlook and very low inflation indicates the BOJ will keep monetary policy accommodative.
  • PBOC—Policymakers are likely to remain on hold as trade tensions abate, while displaying a willingness to act to prop up growth if needed.


After three 25 bps cuts this year, the Fed is signaling it will remain on hold over the year ahead. The median dot for December shows the fed funds target rate remaining at current levels in 2020. Rate markets are generally aligned with the Fed view, although the bias leans toward one rate cut in 2020. The yield curve continued to steepen over the past month with the 2s/10s UST spread now at 25 bps. Most measures of global core inflation remain below 2%, indicating price pressures are largely absent and central banks have room to adjust rates further if needed.


The trade-weighted USD ticked lower in November. The direction of the USD likely depends on the relative momentum of a global economic recovery. Since the Euro area and China are starting from a lower base, a stronger upturn could favor both the EUR and CNY vs. the USD. However, a more modest economic acceleration or further weakness could result in a steadier or stronger USD. Gold has been fairly range bound over the past month as any economic recovery signals await further data confirmation. Oil prices continue to rebound with WTI breaking through the $60/barrel level for the first time since September. Trade optimism and OPEC production cuts seem to be supporting the price.

Geopolitical Risks

  • U.S./China trade progress collapses; renewed threat of additional tariffs on other countries
  • Uncertainty around next phase of post-Brexit talks with EU
  • Rising Middle East tensions—Turkey, Syria
  • Wild Cards: Hong Kong, Iran, North Korea; Venezuela; Argentina; global supply chain disruption

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