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  • Federal Reserve meetings have always provided financial media organizations plenty of material to discuss and dissect. This week’s meeting delivered more than usual. Jay Powell has, in the space of six weeks, moved from zero to hero for equity markets. Now, his explicitly stated goal is to sustain the expansion in an environment of slowing global growth. With “muted inflation pressures”, the Fed have indicated they will be “patient” with regards rate hikes. In essence, the Feds monetary policy has moved from a forecast model to a data dependent model – this may bring greater volatility to securities markets with every economic release parsed for its impact on Fed policy.
  • EZ Q4 GDP releases provided a mixed picture for the larger European economies. Notwithstanding concerns with regards the impact of the yellow vests protest, France provided a positive surprise (primarily through the export channel). Germany escaped a technical recession, although growth forecasts for 2019 have been reduced. Unfortunately, Italy was not as fortunate as Germany, with the consequence that the Populist government will be under increasing pressure to deliver the economic benefits of their long fought for fiscal stimulus.    
  • One of the primary reasons for the Chinese slowdown in recent months has been the authorities’ attempts to reduce the level of corporate debt (especially in the private sector) and a remodeling of the shadow-banking sector. At the same time party leaders are cognizant of the political risk associated with a dramatic halt to growth, hence the introduction of more subtly targeted stimulus. This week, it involved subsidies for the upgrade and/or purchase of automobiles and home appliances. The consumer will be required to play a more important part in Chinese growth as the economy matures – these measures should encourage this.
  • Brexit continues to overshadow the underlying features of the UK economy. Last week we emphasized the low levels of unemployment. This week we highlight the capitulation in residential house price appreciation (see chart). Despite very low interest rates and a strong labour market, Brexit uncertainty has curtailed investment and big-ticket acquisitions. The clarity that investors seek on Brexit may not be evident until late March as we approach a scheduled EU summit and the official exit date.