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Source: Macrobond.

Q2 is unlikely to offer a break from the unrelenting string of policy-driven uncertainty, which threatens to become an economic headwind in its own right. The list includes the usual suspects that are expected to make news going into the summer, including Brexit and U.S.-China trade negotiations, and could stretch well into next year with the 2020 presidential elections.

Uncertainty has already had a noticeable impact on markets and the economy. In the earliest days of 2019, the U.S. government shutdown was arguably the reason consumer confidence fell off its multidecade highs, and the two key indicators have still not recovered end-Q4 levels.

In the U.K., the ongoing Brexit negotiations are more than a parliamentary distraction. Growth in the U.K. has gone from among the strongest in the G7 to the laggard. This only added to global trade negotiations and threats of tariffs that negatively impacted sentiment in EU manufacturing.

U.S. trade negotiations, particularly with China, will remain top of mind for financial markets and the economy. News in late Q1 that trade negotiators could be near a deal seemed to evaporate again. And the bilateral goods trade deficit, which has been the focus of U.S. administration trade policy efforts, has widened to a record high. Part of this is due to the threat of tariffs causing U.S. buyers to front-load imports from China.

We will continue to watch these headlines closely because uncertainty can itself become an economic headwind. We have already seen business investment slow from 2018 levels, and the outlook for U.S. multinationals remains heavily tied to their international supply chains. We do not expect uncertainty to dissipate; it should remain a moderate headwind to business investment.

Read the analysis for each indicator:

Growth downshifts from sprint to sustainable

Consumer confidence
Housing market
Business investment

A perfect storm of policy uncertainty

Policy uncertainty

Smooth sailing for high yield, headwinds for equities

Equities
Fixed income

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