Global growth is expected to grind lower in 2019, with continued monetary policy normalization in developed markets being the key headwind for the world economy. Financial conditions will tighten further as the Fed continues its gradual increase in interest rates.
In December, US Treasury (UST) yields fell as risk assets came under pressure from various factors, triggering ‘safe-haven’ buying.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 1.50% over the month, outperforming Australian equities which fell 0.12%.
The word “volatility” crops up a lot when commentators try to explain price movements in financial markets. More often the word is used to explain a sudden drop in prices, whereas if prices rise investors compliment themselves on their astute insights rather than the vagaries of the markets. Psychologically, losses are felt more intensely than the pleasure of a gain.
While New Zealand markets have had a rather interesting and more volatile time, the main drivers of the economy remain sound.
US Treasuries (USTs) registered gains in November, while yields fell along with faltering US equities.
The macroeconomic backdrop for Asian countries should remain broadly neutral for credit performance in 2019. GDP growth is expected to moderate across the key economies, although we don’t expect any hard landing scenarios to materialize.
Shakespeare once said, “present fears are less than horrible imaginings.” As we come to the close of 2018, we have observed equity markets turn double-digit returns to losses, an aggressive rise in interest rates and a modest increase on the perception of escalating tensions surrounding the world’s two largest economies.
In addition, we have to consider the eventuality of a prolonged trade war. But China would be able to mitigate its impact initially via a combination of monetary and fiscal stimulus, helping offset the impact of tariffs to a certain extent.
Credit markets didn’t perform in line with the expectations we set at the beginning of the year and disappointed most investors.
So many developments have occurred since we last met in September, but the major ones were the surprising collapse in oil prices mostly due to geopolitical factors, the U.S.-China trade and BREXIT conflicts becoming increasingly intractable, and that aspects of the global economy showed occasional signs of moderation.
Global growth remains desynchronized, with China, the Eurozone and Japan continuing to show further signs of moderation, while the US remains relatively robust.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.24% over the month, outperforming Australian equities which fell over 2%.
Global growth remains desynchronized, with China, the Eurozone and Japan showing a further moderation in growth, while the US remains robust.
The US economy is enjoying its second-longest growth cycle in history and is on the way to becoming the longest on record.
US Treasury (UST) yields spiked at the start of October as the market responded to stronger US data and Federal Reserve (Fed) Chairman Jerome Powell's hawkish comments.
On the back of unrelenting USD strength, 2018 has been a tumultuous period for Asian currencies. Countries in the region with current account deficits have been facing more currency pressure, prompting their central banks to engage in series of rate hikes to defend their currencies.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.48% over the month, outperforming Australian equities which tumbled over 6%.
In September, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps). The monetary authority removed the clause that policy rates are "accommodative", and modestly raised its growth forecasts for this year and next.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was down 0.42% over the month.