Economic context
The US economy continues to benefit from the strength of activity in services and the real-time estimate of GDP for the third quarter calculated by the FED was revised upwards again. The employment report also reassured investors but the data are often unreliable because of regular revisions and the leading indicators are not as favourable.
The main risk is obviously that of the US elections whose result is more than uncertain (Graph #1). If Donald Trump seems to be the candidate best equipped to respond to the problems of Americans according to a Wall Street Journal poll, his too "extreme" character penalizes him. The economic consequences of the programs of the two candidates are also uncertain and the least bad scenario would be that of a victory of one or the other candidate with a divided Congress. Finally, it seems to us that one risk is currently underestimated by investors: the impossibility of determining the winner of the elections before several weeks, as happened in 2001 and an interminable recount of votes in Florida that ultimately favoured George Bush Jr. This year, Pennsylvania will probably play the role of arbiter.
In Europe, activity is deteriorating again (#2). Germany is still not rebounding and it is fair to think that this is now more linked to a structural problem than a cyclical one, and French activity disappointed in September. Inflation is accelerating its decline to 1.8% and is below the ECB target.
In China, the government has finally taken significant monetary stimulus measures. There was an urgent need to act given the weakness of leading indicators or the contraction in the money supply. This set of measures seems convincing to us (#3) but it must be accompanied by a budgetary stimulus plan.
Central Banks