2019 Outlook for the Global Markets – EGM Analytics

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As we start the new year here is our global markets outlook for the year 2019:

CURRENCIES

A weaker USD is expected against currencies such as the EUR, CHF and JPY as envisaged flight-for-safety tailwind risk is expected to cause demand increment in the latter currencies. Currently, cash yields are higher than dividend yields for 60% of company stocks in the S&P 500. Cash becomes a more attractive investment vehicle in 2019. Demand for sources of cash is expected to increase. AUD, NZD largely dependent on the evolution of the US-Sino trade war. GBP still in a place of limbo, until Brexit is resolved in its entirety – a mutually accepted good deal would see the Cable surge significantly as all through 2018, GBP price valuation have been capped by Brexit uncertainty risk. Bank of England governor, Mark Carney sees the UK economy depreciating by an average 8% on the back of a no-deal or hard Brexit; GBP expected to depreciate further significantly.

COMMODITIES

Although oil price is expected to rise for the year 2019 on the back of the proposed production cuts by OPEC+ going into effect this January. The headwind risk here is a global slowdown in demand, thus nullifying price-boosting contingency plan by the cartel. Aside from the fact that the US is now a net exporter of oil as crude oil inventories were seen at the highest level last year and it is expected to increase further in 2019, political risk also poses a significant hindrance to oil prices as Washington would do its best possible to see oil price low. Our outlook still keeps us in the bearish zone for oil. Gold expected to get a relief rally on the expectation of weaker USD. Copper price valuation still quite uncertain as US-Sino war still poses a significant risk on the red metal.

EQUITIES

Aside from concerns with higher rates, the focus is expected to shift to slower growth, diminishing margins and expected weaker earnings, thus fairly consolidating our bearish view on US equities. US equities posted respective losses for the year 2018. Europe stocks might see better performance as valuation are less expensive compared to their US counterparts.

CREDIT

US corporate sectors leverage level would face a significant challenge as there would be significance refinancing burden starting in 2019 through 2022. In a market where yields are higher, margins are weaker, the economic slowdown is markedly expected to increase during the above-stated period.

MACRO VIEW

As the effect of fiscal stimulus starts to wear out, real US GDP growth is expected to slow down in the second quarter. The Federal Reserve’s dot plot would most likely cause volatility as expected approach for the central bank would be entirely data dependent – expected volatility should be seen in the bond and equity markets. Evolution of the US-China trade war poses a significant risk to the global market – the effect is starting to bite as Chinese manufacturing data are starting to fall short; Apple cuts revenue forecasts as it sees current growth metrics declining sharply.

EMERGING MARKETS

On the shorter-term, higher real yields in the US and ongoing growth differential between the US and the rest of the world continues to bolster bullish bias in the greenback, thus causing a slowdown in growth in the emerging markets (EM). However, from a medium-term vantage point, EM might get relief as the Fed’s forward guidance is slightly shifting to neutral amidst global growth slowdown due to trade war risks. Towards the end of 2018, there were indications that the internal and external balance sheets of EM nations are being restored in part, with the support of the International Monetary Fund (IMF). If this effect continues in 2019, emerging markets can recover, thus encouraging capital inflow into the EM space.

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