Last week we had a quiet start with a lot of Asia out due to the Chinese New Year. We started the week with warnings from Ignazio Visco, the Bank of Italy’s Governor, warning of the downside risks to the central bank’s forecast for economic growth after the nation slipped into a recession in the last quarter of 2018. The recession, Italy’s third in a decade comes as the bank’s latest growth projection of 0.6% GDP growth for 2019 and 1% for 2020 start to look optimistic, in spite of being in-line with national and international forecasters. Visco acknowledged ‘The prospects for the Italian economy are less favourable today than they were a year ago’ adding there are ‘significant risks on the downside’.
We also heard a cautionary note from Dallas Federal Reserve Bank President Robert Kaplan, saying he believes the U.S. central bank will hold off on rate increases until at least the summer. "It's very important for the Fed to get out of the way" and let uncertainties around the economy resolve themselves before weighing any more changes in monetary policy, Mr. Kaplan said at a Friday appearance at the Texas Lyceum, in Austin.
President Trump called for bipartisanship in his State of the Union address — on his terms. He urged immigration compromise while casting his fight against illegal migration as a moral struggle — not a national emergency. He gave Dems no new incentives to break the wall funding impasse. He'll hold talks with North Korea's Kim Jong-Un in Vietnam February 27-28. Financial markets shrugged.
Senior U.S. and Chinese officials were poised to start another round of trade talks in Beijing this week to push for a deal to protect American intellectual property and avert a March 2 increase in U.S. tariffs on Chinese goods, two people familiar with the plans said on Tuesday. In December the US delayed a threatened tariff increase to 25% on $200bn of Chinese goods until March 1 to allow time for negotiations to take place.
Both the EC and the Bank of England slashed their growth forecast for this year, blaming a plethora of ongoing concerns, from trade frictions and a slowdown in China to political instability and the ‘fog of Brexit’. The EC now believes that the EU economy will grow by just 1.3% the year, down from the 1.9% it forecast only 3 months ago, whilst the BoE believes the UK will fair slightly worse at 1.2% growth, down from the 1.7% predicted in November.
And finally, Donald Tusk, the European council president, has said there is a ‘special place in hell’ for politicians who promoted Brexit ‘without even a sketch of a plan’, while he reiterated the EU’s refusal to renegotiate the withdrawal treaty.
This week focus will be on inflation with CPI and PPI in the US alongside retail sales, IP and capacity utilisation. Little is scheduled for release in Europe, however, UK, RPI, CPI and PPI will be of interest given the economic weakness of Q4 and Thursday we get German GDP and EU Industrial Production.