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MACRO RESEARCH
November 2018

Global View – 2019


Foreword
At the start of 2019, financial commentators seem to be split into two camps. Those focusing mainly on facts and figures on the real economy highlight the dynamic rate of global growth. They claim this will fuel corporate earnings and encourage investment activity. The output gaps have closed in the past year and labour markets are looking tight in the USA, Japan and core Europe. Wage rises are thus expected to accelerate and contribute to nascent inflationary threats. This analysis suggests a boom that will lead to higher interest rates and at the same time robust equity markets.
Those who focus more on the monetary side of things rather than the fundamentals see the situation in a more sober light. They point to the global central banks’ determination to scale back their balance sheets. The withdrawal of many billions of global liquidity every month is putting downward pressure on the markets for all asset classes. This makes an appropriate correction probable in the comparatively high valuations of bonds, equities and even real estate. Such corrections can have a negative effect on assets and damage the mood of consumers and investors so badly that the economy can fall into a downward spiral. This would lead to a «bust» scenario with ailing equity markets and higher interest rates.
As is often the case, the truth lies somewhere in between. Both sides of the coin – monetary policy and fundamentals – are crucial or determining the development of the economy and financial markets. In synthesis, a third scenario is possible: after robust growth in recent years we have to expect a slower rate of growth at the start of 2019 caused by monetary and cyclical factors. However, the ongoing fiscal stimulus in the USA and the stimuli being announced by China will help to revive the economy in the second half of 2019. But this would lead to even tighter labour markets and thus encourage the global central banks to raise interest rates to combat the threat of inflation. This will inevitably have negative consequences over time.
The party can only continue until the central banks stop the music. Although we shouldn’t get into a panic about 2019, we should also be mindful that a boom can eventually turn into a bust. The effects this can have on investments are described in the outlook for 2019 we provide in this edition of Global View. I hope you enjoy reading this issue and wish you a very happy and prosperous New Year.


This issue’s highlights
Economic Outlook
Moderating growth dynamics
Forex Strategy
Late-cycle dynamic to increase FX risk
Fixed Income Strategy
Global rates to rise moderately
Emerging Markets
Will China save the day?
Equity Strategy
Adopting a more defensive stance
Sustainability Focus
Active Ownership - Reaching Record Levels in 2018
Asset Allocation
Times of change