(Feb 14): A wareness of potentially high-impact but improbable developments should help investors prepare for unexpected changes in market conditions. In our base case, the global economy is poised to improve in 2020 and the outperformance gap between the US and other developed market economies is likely to shrink. After all, December 2019 brought to fruition the US-Mexico-Canada Agreement, the Phase One US-China trade deal, a US budget agreement and a clear mandate by the British electorate to follow through on Brexit. Consequently, we expect global growth to reach 3.5% barring additional geopolitical shocks. We see interest rates remaining low and inflation being contained but moving a bit higher globally.

Our base case incorporates the dynamics we see as most likely. Here, we consider the grey swans — alternative scenarios outside the scope of our base case but not beyond the realm of possibility. The market may discount their likelihood, but if any one were to happen, it has the potential to materially move markets. Our grey swan scenarios are as follows:

1. A spirit of fiscal cooperation builds in Europe

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