Market Outlook 2019
Putting 2019 into Perspective
As we head into 2019, it looks set to be another year of new challenges and potential opportunities. Our 2019 Perspective represents Swissquote Bank’s approach to taking a chaotic world and building a semblance of order, to better support our clients’ investment decisions.
«Behind the headlines of Brexit, trades tensions and geopolitical risk, the global economy is performing well.»
Michael Ploog - CFO Swissquote
What we will watch in 2019
• Diverging Monetary Policy Cycle
• Emerging markets caught in the storm
• Trade is heading in the wrong direction
• European politics overshadow economic gains
• China’s evolution critical to new world order
• Growth discrepancy will complicate forecasts
What will keep us on our toes
Geopolitical risk indicators are all in the red as in this post– Cold War phase, framed by so-called «New World Order» thinking, everything is shifting. Fears directly reduce household and business confidence, which inhibits spending and slows growth. Actions by the US over the last two years, including withdrawing from the Iran nuclear deal, have created a rift between traditional allies.
Financial market free-fall
Given the trade risk, equities have held up surprisingly well. This is primarily due to still positive financial conditions and strong earnings. However, a slightly more aggressive weakening in demand could easily lead to stagflation or recession (which has a high probability of occurring in the US in 4Q 2019), damaging high corporate earnings and profitability levels.
There is plenty in current US data to be worried about if you are a Fed member. The Fed is now confronted with unique challenges to manage the ramifications of Trump’s trade war, the inflationary effects of fiscal stimulus and threats to its independence. The Fed might have a tough choice to make. It may have miscalculated, given rising inflation and the lagging effect of trade on demand.