Jan 02 2019

What’s in store for 2019?

is anybody’s guess. But let’s look at some of the themes that seem pivotal to global markets in Twenty Nineteen.

Global Growth
Global growth is threatening to slowdown if not coming to a grinding halt. In October, IMF cut global forecast to 3.7% from 3.9% earlier. What with trade policy tensions, uncertainty over Brexit, weaker performance by Euro Zone and Japan and woes of some of the emerging markets struggling with rising interest rates and capital outflows.

US Monetary Policy
This, so far depended mainly on US employment number with the inflation target firmly in place and on radar. However, a grim global growth prospect could affect (or as a result of) the US growth. This would impact the trajectory of interest rate action in the next year. Market overcome by worries, that the FED may overshoot, pushed the longer tenor bond yields lower than shorter tenor. Yield curve remained inverted for over a week in December, triggering recessionary fears. US yield curve and FOMC action need to be watched closely this year.

Trade war
After months of escalation and heightened tension, US and China have agreed to ceasefire for 90 days. In the first month of the truce, there has been movement in the positive direction, with China rolling back tariffs and US held off tariff on additional USD 200 bn imports from China and discussion at various levels have been going on. Going by the recent turn of events and the power struggle between the leaders of the two countries, there is likely to be tension and trade relationship on tenterhooks. By some miracle if US and China were to arrive at an agreement, 2019 will be a very different year as compared to 2018.

Brexit
From the beginning, it’s been on a weak footing. When the then PM Cameron resigned even as UK voted to leave, Ms. May took over – she was originally from the “remain” campaign. No wonder things were off to a shaky start and now no end in sight. What UK wants and what the EU wants (obviously) aren’t the same. UK voters chose to opt out of EU without knowing (or having in place) the full detail of the exit proposition. If Theresa May is unable make a proposition that sells internally, will there be second referendum? This is going to be a long messy affair and global markets will get drawn into the muck – like it or not.

Oil
In 2018, oil has been on of the movers and shakers. It reached a 4-year high sometime in October just before the US renewed sanctions on Iran. To prepare for this eventuality, pumping was revved up. However Trump exempted 8 countries and allowed them to continue to import from Iran though it’s a short-term arrangement. This resulted in a glut and crude prices came tumbling down.
If the volatility continues, it will affect both OECD and oil importing countries on both end of the price band. Hope that band is not too wide creating wild swings.

Indian elections
May not be hugely relevant to the global markets, but Indian election that is due in May is “the event” to watch as far as Indian markets go. The recent elections at the state level seem to be showing some serious anti-incumbency sentiments – that doesn’t bode well for BJP. The perception of international investors and views of rating agencies will largely depend upon election outcome and change in policies / priorities (if any) thereby.