The PMI indices, published on Tuesday, confirm the assumption that the change of the Fed's rhetoric was not accidental, business activity in the US is slowing down. The January ISM index for the services sector, while still at a high level of 56.7, fell against 58.0p a month earlier, this is the worst value since March 2018, and the IBD / TIPP economic optimism index instead of the projected growth fell from 52.3p to 50.3p, it is the minimum in 19 months.
The Congressional Budget Committee (NWO) has published the next 10-year forecast, from which rather gloomy prospects follow. It is assumed that already this year the federal budget deficit will reach 900 billion dollars, and from 2022, it will exceed 1 trillion a year and will range from 4.1% to 4.7% of GDP, which is significantly higher than the average for 50 years. Due to the constantly growing deficit, the federal debt will rise to 150% of GDP by 2049, well ahead of the previous record set after World War 2.
As the head of NWO explained in the comments to the forecast, the current scenario is more optimistic than negative, since federal spending will grow at a high rate, mainly due to interest payments and social security costs
As for revenues, their growth is largely expected due to the planned completion of the tax benefit period within the Trump reforms. The average budget deficit of 4.4% for the next 10 years against the background of low unemployment is an unusual and frightening phenomenon since it indicates that even with an economy operating at full capacity, it is unrealistic to reach a deficit-free budget.
In other words, CBO sees no prospects for higher income growth and come to the conclusion that the likelihood of a fiscal crisis is increasing, which is another argument in favor of approaching a large-scale recession.
Trump's speech in the US Congress was mainly devoted to attempts to justify the need to build a border wall between the United States and Mexico, assurances of the success of tax reform, but did not give any clarity neither on the trade negotiations with China, nor on the possibility of another shutdown after the current extension.
Eurozone
The volume of production orders in Germany declined by 1.6% in December, year-on-year, a fall of 7%, a decline in production was observed in 7 of the last 8 months, which indicates a protracted and systemic nature. According to experts from Deutsche Bank, Germany is very close to a recession, and in the first quarter of this year, we should expect a decline in GDP. In a similar situation is the third eurozone economy in Italy, and the situation is aggravated by a serious debt crisis.
Today, the ECB will publish a regular economic bulletin, which is expected to provide explanations of its estimates on a number of macroeconomic indicators. In any case, there is no positive wait, EUR / USD is under pressure, support is at 1.1360 / 70 and 1.1335 / 40, corrective growth is unlikely.
Great Britain
The slowdown in business activity in all sectors of the UK economy, without exception, against the backdrop of a political crisis associated with a country's exit from the EU, does not give any reason to believe that the Bank of England at this meeting will be able to voice at least some positive. Voting at a rate is assumed to be unanimous in favor of keeping the current policy unchanged, the inflation report will give guidance on the main macroeconomic indicators.
In general, the pound has no reason to resume growth at least until the final decision on the issue of Brexit. The EU has made it clear that new negotiations are excluded, so the best option would be to accept the inevitable. GBP / USD will try to find support in the zone of 1.2901 / 10, but in any case, it will be temporary and will not be able to stop further decline.