Heading into the end of December, we wish to observe the occurrences of a challenging 2018 and form an outlook for the new year 2019.

Since the subprime crisis, the financial markets have enjoyed almost a decade of bull markets and lackluster volatility amidst a global central bank environment of low interest rates. Although the ECB has yet to reverse its monetary policy, the US Fed commenced a mild yet continuous pace of interest rate hikes from as early as December 2015. It was only in the first quarter of 2018 when credit spreads widened considerably as 10Y US Treasury yields finally ended their losing streak of since the early 1980s due to higher inflation expectations.

Emerging market (EM) bonds was a credit class that in effect suffered, while the pressure was amplified with a series negative economic and political events intrinsic to their local economies. The economic downturn of Argentina which required an IMF bailout plan, is one such example, while the US-Turkey political standoff which spurred vast internal inflationary pressures amidst a Turkish lira slump, is another.

Local EM currencies also drifted into crisis mode as they were shunned by international investors fearful of a strengthening dollar and the vulnerability this would cause to upcoming dollar debt obligations.

A further elephant in the room has been the continuing US-China trade war which threatens to contract the world’s second largest economy that fuels demand for natural resources and production parts from economies worldwide.

Turning to Europe, two sagging threats remain the budget deficit expectations of the new populist government of Italy which defies the EU’s 2% requirement and the ongoing Brexit saga that may lead to extremities such as a ‘no deal’ hard Brexit or the calling of a second referendum.

Lastly, the last quarter of 2018 brought further shocks as oil prices fell 40% from highs to below 50$ levels while major US equity indices shed an average of 13% amidst fears of a tech slowdown and weaker corporate earnings.

So what does Mr. Market have in hand for 2019 amidst such intertwined global financial markets?