The Global Economic Doctor

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Welcome to the latest edition of The Global Economic Doctor.  This week, Dr. Scott B. MacDonald writes:

The Witches Gather
Double, double toil and trouble;
Fire burn, and caldron bubble.
— From Shakespeare’s Macbeth

Three narratives are likely to dominate global markets in the next several months: mixed economic signals are likely to maintain an elevated level of uncertainty about U.S. economic growth and how the Federal Reserve responds to it; uneasiness about macroeconomic direction will reinforce the quiet flow of money out of equity markets and into cash, gold-related funds and the investment grade corporate bonds; and the ongoing importance of political risk (i.e., Brexit, terrorism, South China Sea and Russia) which could be disruptive to markets.  The tone of the narratives depends on upcoming data, such as U.S. housing starts, manufacturing numbers and consumer activity as well as real GDP numbers for Japan, China and key Emerging Market countries.

Along these lines, we believe that the Federal Reserve will make at least one more raise in 2016, but it will most likely come in December.  Considering the release of the minutes from the April FOMC meeting, chances have probably increased for a rate hike at the June 14-15th FOMC meeting, but we would have to question why U.S. central bankers would want to act only days before the June 23rd Brexit vote.  Polls indicate a close vote in the UK and if the British opt to cut their ties to Europe, markets are more than likely to take a tumble.  That would not exactly make the Federal Reserve look on top of their game.

At the same time, Chinese geopolitical issues (and there are a lot) will remain in the headlines, Russia remains a major geopolitical factor on Europe’s eastern borderlands and Brazil’s as well as Turkey’s politics remain in flux.  We also have our concerns over the wobbly nature of Italy’s banks and the ability of the government to gain any more traction on reforms.

The cauldron is bubbling and if you listen hard enough you can them chanting, “Double, double toil and trouble….”



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