Over the past few weeks markets have fluctuated between positive news around geopolitics (US-China trade talks, Italy and receding risks of no-deal Brexit) and not so good news around economic data (German recession, US manufacturing and Chinese slowdown). This led to a rebound in equities and a rise in core bond yields. A new wait and see phase has likely started during which markets will reassess recession fears and the pressures of trade dynamics on corporate balance sheets. Last year the key drivers of markets were inflation expectations and interest rates. Now, the main factors causing market movements are expectations of recession and policy actions (monetary and fiscal). On both, we believe the markets expect too much. In our central scenario we do not think an economic recession will occur in next 12 months as domestic consumption remains strong (although manufacturing is weak). However, corporate earnings may still be impacted, which is a fragile environment for equities.