Fas­ten your seat­belts, 2019 will be a wild ride

Financial Mirror (Cyprus) - - MARKETS - Mar­kets Re­port b

The fi­nal quar­ter of 2018 will be remembered as a dra­matic one for fi­nan­cial mar­kets. Don’t ex­pect this trend to change in the early pe­riod of 2019.

Fi­nan­cial mar­kets have been se­verely hit by ac­cel­er­at­ing signs of an eco­nomic slow­down, trade con­cerns, geopo­lit­i­cal risks, and the tight­en­ing of U.S. mone­tary pol­icy. Volatil­ity has re­turned with steep moves to the down­side. Sell­ing the ral­lies is now seen as a pre­ferred strat­egy from in­vestors as op­posed to buy­ing the dips which has been closely fol­lowed by traders over the last sev­eral years.

Global syn­chro­nised eco­nomic growth was the key theme in 2017. Year 2018 saw the di­ver­gence be­tween the U.S. and the rest of the world. In 2019 we are likely to con­verge again, but this time in a syn­chro­nized global slow­down. Many in­di­ca­tors have in­di­cated a peak in the U.S. eco­nomic cy­cle, in­clud­ing most re­cent eco­nomic sur­veys, fi­nan­cial con­di­tions, hous­ing data, and the in­ver­sion of the U.S. Trea­sury yield curve. Adding this to­gether with trade ten­sions, po­lit­i­cal risk, fad­ing fis­cal stim­u­lus, and a tighter U.S. mone­tary pol­icy; the eco­nomic out­look is ex­pected to look much more vul­ner­a­ble in 2019.

It is be­com­ing ev­i­dent that the U.S. econ­omy has reached an in­flec­tion point. This doesn’t nec­es­sar­ily mean we are im­me­di­ately en­ter­ing a re­ces­sion but ex­pect much slower growth than the 4.2% seen in the se­cond quar­ter of 2018. In such an en­vi­ron­ment, in­vestors need to be pre­pared for a more volatile year as mar­kets ad­just to a new re­al­ity of slower eco­nomic growth.

In For­eign Ex­change mar­kets, the U.S. Dol­lar was the se­cond-best per­form­ing ma­jor cur­rency in 2018 after the Yen. It rose more than 4% against its ma­jor peers and ap­pre­ci­ated sig­nif­i­cantly against com­mod­ity and emerg­ing mar­kets cur­ren­cies. How­ever, there is a high prob­a­bil­ity for the Dol­lar rally to come to an end in 2019.

There were nu­mer­ous fac­tors that sup­ported the Dol­lar in 2018. Ro­bust eco­nomic ex­pan­sions, fis­cal stim­u­lus, a hawk­ish Fed­eral Reserve, and fund repa­tri­a­tion by U.S. firms were key to the Dol­lar’s strength. Look­ing into 2019, none of these fac­tors will re­main in play.

Brexit is fast ap­proach­ing and will likely make most of the head­lines in the first cou­ple of weeks in 2019.

Al­though Prime Min­is­ter Theresa May has fi­nalised the UK With­drawal Agree­ment in Novem­ber 2018, it’s not a done deal yet. Ster­ling will face a tricky sit­u­a­tion in the months ahead. While an or­derly exit from the EU will be wel­comed by mar­kets and pro­vide a boost to the Pound, a no deal sce­nario has mul­ti­ple out­comes with a vary­ing de­gree of im­pact on U.K. as­sets.

Are we go­ing to see a dis­or­derly exit from the EU, an ex­ten­sion to the dead­line, a gen­eral elec­tion, or no Brexit at all? With all these pos­si­ble sce­nar­ios, ex­pect to see large swings in Ster­ling un­til the Brexit clouds clear. For in­for­ma­tion, dis­claimer and risk warn­ing note visit: www.ForexTime.com

FXTM Brand: ForexTime Lim­ited is reg­u­lated by CySEC and li­censed by the SA FSCA. Forextime UK Lim­ited is au­tho­rised and reg­u­lated by the FCA and FT Global Lim­ited is reg­u­lated by the IFSC

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