Report29 January 2019Updated 19 seconds ago

Asia in 2019: Macro and Markets

 Asian and global markets entered 2019 in a “Pollyanna” mood – looking for the good in everything. But we think optimism will evaporate as the USD starts to show signs of strain, the synchronised global slowdown in late 2019 early 2020, not forgetting the idiosyncratic factors - elections and oil. Here, we try and understand what might happen in the year ahead

Executive summary

Despite markets entering 2019, looking for the good in everything, the backdrop is complicated and messy.

Federal Reserve Chair Jerome Powell’s comments at the Atlanta Economic Conference were interpreted as signalling possible rate cuts despite the astonishingly strong payrolls and wage growth in December 2018.

Stock markets soared too on more positive noises about the possibility of a China-US trade deal, thanks to comments from President Trump.

But our view is - everybody needs to wake up.

The Fed will still hike in 2019 and the best we can hope from the trade discussions is a cessation of additional hostilities, not a rewind of existing tariffs.

Optimism will eventually evaporate - the USD will show some further strength in 1Q19, and possibly 2Q19, but then start to increasingly show signs of strain.

The synchronised global slowdown in late 2019 early 2020 is likely to see the USD soften, and some semblance of uneasy calm return, though risk havens will likely hang on to gains (JPY)

Let's not forget the idiosyncratic factors – political elections and upsets, and the return of oil need to be overlaid on this.

It’s going to be complicated.