The global equities market took a hit after the US Federal Reserve (Fed) raised borrowing costs for the fourth time last year.
Investors interpreted the latest Fed statement as less “dovish” than expected, despite the lower interest rate projections for 2019 from the Federal Open Market Committee’s dot plot.
Generally, 2018 had been an extremely tough year for investors in the markets as most of global bond and equity markets finished the year in negative territory.
Some of the key events that investors should watch out for in 2019 are highlighted below.
As we get closer to March 29, when the Article 50 is triggered, volatility on European equities is likely to remain high until greater clarity from the Brexit negotiations is known.
A recent survey by the Institute of Directors showed that business leaders’ confidence in the UK has sunk to levels not seen since mid-2016 amid the escalating risk of a no-deal Brexit.
The majority of business leaders expect things to get worse and anticipate a downturn in economic conditions, due to the uncertain future trading relationship with the European Union and from a shortage of skilled workers.
Prime Minister Theresa May’s decision to postpone the Brexit deal vote was deemed as an almost certain defeat for her in the UK Parliament last month and market participants now see a no-deal Brexit as the most likely outcome.
The International Monetary Fund forecast the UK economy would face output losses of around 5% to 8%, which currently has yet to be factored in the earnings projection of UK companies.
The outcome of Brexit negotiations would be one of the key events that investors might not want to miss — especially for investors who have exposure to European equities — as it would have a meaningful impact on the economic and earnings growth of European countries.
US-China Trade Negotiations
The trade dispute between the US and China has hurt investor sentiment and earnings of companies, leading to the sell-off on global markets last year.
Undeniably, the US-China trade negotiations would be one of the most closely watched events by global investors in 2019.
Based on current developments, China has resumed its purchase of US-produced soybeans, cut tariffs on US-imported cars from 40% to 15%, and lowered import taxes on more than 700 goods from Jan 1, 2019.
This shows that the Chinese government has made progress in trade war talks.
Global equities markets have not priced in any breakthrough in the US-China trade dispute, despite the 90-day tariff ceasefire.
A settlement is likely to translate into a stronger global economic growth, positive earnings upgrade, as well as a relief rally on global equities.
Conversely, if the US and China fail to secure a bilateral agreement, we could see both parties impose higher tariffs which might eventually dampen global economic growth.
The tightening of the global monetary policy had drained liquidity from most Asian and emerging markets (EMs) in 2018.
Several EM and Asian central banks — such as those in the Philippines, Indonesia, India, Russia and Turkey — have moved to tighten their monetary policies.
In Europe, the European Central Bank (ECB) has ended its €2.6 trillion (RM12.35 trillion) stimulus programme and the very first-rate hike since 2011 is expected to happen in the second half of 2019.
Given the headwinds, a premature rate hike by the ECB would further contribute to volatility in global markets.
With the tightening liquidity and stronger US dollar, global central bank policies should be one of the key events to watch out for and will continue to dominate investor faith in risky assets this year.