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Economy

Upcoming events to watch

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  • Central banks are expected to continue with their cautious policy approach, with negative policy rates likely to continue for the foreseeable future in continental Europe and Japan. In October, Citi analysts expect the US Federal Reserve to cut rates by a further 25bps and then hold thereafter. October also sees European Central Bank’s President Draghi’s last meeting, with rates expected to stay on hold.

 

  • Global trade continues to dominate headlines. In recent weeks, financial markets rallied on officials’ comments a trade truce between the US and China with a shelving of threatened US tariffs increases scheduled this month. Phase one of the deal is expected to be signed off at the APEC meeting in mid-November. As negotiations continue, Citi analysts think it is uncertain as to how long the current trade truce may last amid wide-ranging bilateral issues. However, the market’s positive response shows the continued potency of trade issues in determining the economic outlook.

 

  • With less than two weeks until the Brexit deadline of 31 October, the UK remains at a pivotal stage. Late last week, financial markets rallied on a heightened probability of a Brexit deal between the UK and European Union. However, the weekend saw a delay to PM Johnson’s deal which saw lawmakers voting on Saturday in favor of an amendment that withholds approval of the deal until the legislation needed to ratify it has been passed by the UK parliament. While the Brexit situation remains fluid, it comes at a time when the UK economy is slowing markedly with cyclical pressures exacerbated by Brexit uncertainty. Should Brexit uncertainty lessen, this could prompt more consumer and corporate investing, thereby preventing a further downturn in cyclical economic indicators. 

 

 

  • Citi’s investment strategy. Though the macro environment may still remain challenging, Citi analysts feel bond portfolios should be re-aligned given that the outsized returns from global fixed income (11% over the past year) are unlikely to repeat themselves. The decline in yields deprives bondholders of the income that drives sustainable returns. In contrast, equity dividend yields have risen slightly and their relative value to bonds has risen sharply. In particular, firms that pay and grow dividends consistently (dividend growers) may be less sensitive to both interest rate risk and recession risk.

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