Growing uncertainty brings economic crisis closer

US Treasury Secretary, Steven Mnuchin, appealed to Congress with a request to raise the national debt ceiling. According to Mnuchin, the current resources of the Ministry of Finance are not enough to avoid a default, they will be enough only for a few months and therefore, the Ministry of Finance should be given the right to expand borrowing beyond current limits to maintain financial stability.

On February 5, the level of US public debt exceeded 22 trillion given the rapidly growing budget deficit and the insufficient effect of tax reform. The United States risks reaching out to a 10% annual government debt increase or more than 2 trillion from the current level.

Despite the fact that the main macroeconomic indicators such as unemployment, consumer demand and GDP growth rates, indicate a sufficient strength of the American economy, the approach of the financial storm is felt more clearly. The St. Louis Federal Reserve Bank conducted a large-scale study on measuring uncertainty. Uncertainty is not identical to the concept of risk since even risky projects are usually well calculated on the subject of the distribution of results. First of all, this uncertainty primarily indicates the uncertainty in the distribution of the results either be positive or negative.

The results of calculations look alarming as the current level of uncertainty has been the highest in the sample since 1986.

Inevitably, there will be a decline in business activity, as well as decrease in GDP growth, in the labor market and contraction in inflation in the coming years, according to the authors of the study. Nonetheless, a reduction in investment and consumption will lead to a further reduction in tax collection and a sharp increase in the threat of recession.

EUR / USD pair

The economic index for the eurozone, Sentix, has stopped falling which amounted to -2.2 p in March. Despite the fact that the index has been in negative territory for 7 months in a row, the threat of further decline has become noticeably less.

Sentix marks the first signs of economic stabilization in the eurozone as a whole and in Germany.

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Today is quite an important day for the euro, Markit’s PMI indices for the services sector and the manufacturing sector will be published. Forecasts are neutral, as well as for retail sales in January where the forecasts look optimistic.

In general, there is no driver to push the euro in breaking out of a wide range, since two strong factors of uncertainty that can have a significant impact on the economic prospects of the eurozone have still not been resolved. Firstly, Brexit on the UK exit scenario will have a significant impact on future trade, the direction of financial flows and, ultimately to financial stability. Secondly, this is an approximation of the beginning of a trade war with the United States, which obviously, cannot be avoided. The US economy does not have domestic resources for growth and the country’s authorities are doomed in an attempt to shift a part of the costs to their main trading partners.

On Monday, the euro updated the local minimum with the threat of further decline which remains as a priority. The support of 1.1308 installed on the eve can stand if the economic data turns out to be no worse than the market today. The Growth above 1.1342 is unlikely to occur.

GBPUSD pair

The index of economic activity in the UK construction sector has been declining for 11 months in a row. This reflects investors’ uncertainty about the fact that real estate prices will be able to show a positive trend after Brexit amid falling investments.

The BRC retail sales report also contains a direct indication of the growing uncertainty and the associated fall in consumer spending. Despite the fact that real incomes over the last year have resumed growth, consumers are increasingly aware of the risk of a country leaving the EU without any conclusion and limit costs.

The pound is under pressure and the resumption of growth in the current environment is unlikely. A decline to the support zone of 1.13070 / 90 seems reasonable at the end of the day. Chances of resuming growth or at least going into the lateral range are noticeably less.

The material has been provided by InstaForex Company – www.instaforex.com

Source:: Growing uncertainty brings economic crisis closer

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