The S & P 500 broad market index lost 2.08% on Monday, updating the 12-month low. Despite the fact that the Fed's plans to raise the rate at the last meeting this year were known in advance, investors see no chance of maintaining high economic growth next year.
The main stated goal of the Fed's normalization policy is to stop the downward trend in unemployment before the economy overheats. Here, a simple relationship, full employment threatens to push wage growth, and then inflation too high, which will bring the recession closer.
However, if you focus not on the synthetic, smoothed out from inconvenient parameters picture, but to look at objective data, then the current trends in the US economy look much more gloomy. If we compare the ratio of the growth of new jobs to the number of people of working age, which for various reasons fall out of the labor force accounting, then it turns out that the ratio is at the 2008/09 level, and the entire growth of the last three years is only cosmetic touches.
Similarly, the index of industrial production relative to GDP does not grow but continues to decline. All the attempts of the Trump team, aimed at re-industrializing the economy, have so far suffered a complete collapse, and it is not visible, due to which he can achieve a result.
An unpleasant but objective conclusion follows from this, 10 years of recovery from the 2008 crisis are coming to an end, and no solution has been found for most of the parameters.
The Treasury Report on the inflow of foreign capital shows the same trend, net outflows in October amounted to 42.1 billion dollars, the overall balance is the worst in the last 14 months, foreigners withdraw money from treasuries, both from stocks and from corporate bonds. There are no signs of advanced growth of the US economy, on the contrary, there is an understanding that the new wave of crisis will be more destructive than the one that brought the world into recession 10 years ago.
The dollar will weaken in the coming days, the growth of the Japanese yen and gold as the most obvious defensive assets is likely. There are also good prospects for the Swiss franc.
Eurozone
The final data on consumer inflation in the euro area turned out to be slightly worse than expected, but they did not make a significant impression on investors. The euro is stable for a day before the FOMC meeting, and, quite likely, is preparing for a belated Christmas rally, which will be triggered by a softening of the Fed's plans.
The base index remained at 1%, which indicates some stability in price pressure, in any case, corresponds to the cautious position of the ECB.
There is also positive news, the eurozone's trade surplus rose to 14.0 billion euros in October against 13.1 billion a month earlier, experts expected a decline. A surplus indicates that the ECB may be right in its assessment of growth prospects, and a slowdown in business activity over the past six months is just a market reaction to the completion of the buyout program, and not a sign of going into recession.
Today, the IFO Institute will publish the results of research on business activity and economic expectations, the forecasts are negative, but experts do not expect a serious deterioration. The currency pair EUR / USD in anticipation of the FOMC meeting will continue to trade in the lateral range, limited by the levels of 1.1315 - 1.1385, a bit more likely to move to the upper limit of the range.
Great Britain
In a speech to the House of Commons, Theresa May told parliamentarians that the draft Brexit agreement would be submitted to Parliament from January 14 to 20, 2019. May again tried to demonstrate firmness, repeating the words of the European Commissioner Juncker, that "This is the best possible agreement and the only possible agreement".
Most likely, the currency pair GBP / USD will not get economic drivers today; in the absence of news, the most likely way is to go sideways. Support 1.1310, resistance 1.1385, the chances of breaking the range are minimal.
