Economic data and policies from the US and China will continue to provide guidance on how stock markets move globally in 2019. Here are some of the key issues that we will need to keep a lookout on.
US & China’s 90-day trade war truce
Stock markets in Asia and Singapore were euphoric towards the end of 2017. The Straits Times Index (SGX: ^STI) rose nearly 19% in 2017, the second highest rise on record barring the nearly 20% increase in 2012.
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2018 proved a party stopper as the US-China trade war and other macroeconomic headwinds resulted in a 10% slump in the STI thus far. 1 March 2019 will be a date to look out for as the 90-day truce between the US and China comes to an end.
My analysis is one of three outcomes — deal, no deal, or extended truce. Despite people’s misgivings about President Trump, he has held China’s attention on trade issues in a manner unlike any of his predecessors. If there are concessions from both parties, 2019 could see a return towards healthy global economic growth.
The flip side is there would be no deal, and the US goes on to raise tariffs on US$200 billion worth of Chinese imports from 10% to 25%. There may be short-term economic pains on all parties, but other Asian economies such as Singapore, Indonesia, Vietnam, Thailand, South Korea and Japan could see US manufacturers shifting production to their countries.
What may be most likely is an extension since 90 days may be too short to create a new trade paradigm between the two giants. In which case 2019 may prove to be just as volatile as 2018.
US Federal Reserve
The US central bank raised the Fed funds target range to 2.5% in December 2018. The market is expecting two more rate hikes to 3% in 2019 and one rate hike in 2020. The message is clear that the Federal Reserve’s medium-term outlook has been revised downwards in 2018. Fear over the sacking of Federal Reserve chair Jerome Powell also contributed to a lot of market uncertainty in Dec 2018. The rise in interest rates would benefit financials such as Singapore banks, while having knock-on effects on construction and property developers who may find buyers increasingly careful on high purchase prices.
Focus on safe assets
Given the concerns that we are now on the cusp of a bear market and the US is the only developed nation normalising interest rate policies, we may continue to see an outflow of funds from Asian equities into US Treasuries.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.