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Macro

GUOSEN Closing Bell (December 17)


MARKET

China equities gained support from market calm. Weighted stocks were relatively solid compared with small caps, ahead of the 40th anniversaries of the reform and opening policy. Construction and Construction Materials sectors led the gains, while Healthcare and Electronic Component shares were the worst performers. Combined turnover for both markets was CNY 237.8 bn, down 18.4% dod.

 

 

Close

% Change

Vol (bn CNY)

%YTD

Shanghai

2597.97

0.16

102.96

-21.44

Shenzhen

7592.65

-0.48

135.26

-31.23

CSI 300

3161.20

-0.15

77.15

-21.57

ChiNext

1299.17

-0.86

41.45

-25.87

 

Sector

Top 1

Led by

Top 2

Led by

Upward-leading

Construction

300649

Construction Materials

300344

Downward-leading

Healthcare

002252

Electronic Component

603773

 

NEWS

*Emerging Asian stocks will be the best- performing asset class in 2019, according to institutional investors surveyed by Citigroup Inc. Their preference, pipping U.S. equities as the most-favored market, makes sense if you anticipate a weaker dollar, strategists including Tobias Levkovich, said in a note to clients. (Bloomberg)

*China’s exchange rate is likely to get more volatile in time as the country pushes greater international use of the yuan, according to Goldman Sachs Group Inc. While the yuan-internationalization campaign hit a setback as China tightened regulation of capital flows in the wake of a messy 2015 devaluation, there’s increasing pressure for policy makers to take up the initiative again, economists including MK Tang wrote in a note Monday. (Caixin)

 

FUND FLOW

 

Click here for more information about Guosen.

This article is from Guosen Securities Co., Ltd. and is being posted with Guosen Securities Co., Ltd.’s permission. The views expressed in this article are solely those of the author and/or Guosen Securities Co., Ltd. and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 

 

 


22017




Macro

Eurex: Asia Subdued Amidst Brexit Turmoil


Morning Briefing December 17th 2018

It’s a quiet start to the pre-Christmas week, with just two releases of note: the October Euro Area trade balance at 1000GMT and the November UK CBI industrial trends survey.

Euro Area trade balance was a surplus of EUR13.4 bn in September.

The CBI industrial trends survey showed the order books balance at +10 and the price intentions balance at +9 in October.
At 1100GMT the Bundesbank December monthly report will be published.

In the US, the main release comes at 1330GMT, when the Empire State manufacturing survey is published.

Global Economic Trading Calendar

Markets

US TSYS: US tsys have had a very quiet session with the 10 year future sticking to a 5 tick range, last down 1 tick at 120-11+. Cash yields are up 0.18bps at 2.8913%. - Bonds are shrugging off the decent gains seen in US equity futures and Asian stocks, which have seen modest gains with the exception of China's A-shares. Traders seem focused entirely on the upcoming FOMC on Wed. Rate hike probability for Dec sits at 70.6 currently, having come down from recent highs.

BUNDS: German bond futures have traded with a downward bias today with early losses setting the tone. Bund futures gave back early gains after failing to take out Friday's highs, and last trades down 12 ticks at 163.080. - Friday's gains on the back of weaker PMI readings have shifted the outlook positive, negating a series of topping patterns that were previously in place. - The curve steepening seen at the end of last week reflected the large drop in short-end yields, bringing to an end a lengthy period of flattening. This occurred amid breakevens hitting fresh cycle lows, falling to mid-2017 levels.

JGBS: JGBs have had a pretty active session in contrast with the US, with 10 year futures last 10 ticks off Friday's closing levels at 152.10. The RTRS sources story out over the weekend noting that Japan plans to trim its JGBs issuance during the next financial year in an attempt to curb public borrowing has failed to support the space, which has underperformed the US. - 10-year cash yields are trading 1bp higher on the day, recovering from their lows to trade at 3.7bps last, while real yields are 0.8bps lower at -32.6bps, having failed to break to the upside last week despite a test of the -30bps level. - The curve has recovered after seeing some early bearish flattening, with the 2s-10s spread still down 0.5bps at 16.8bps, while the JP-US spreads trades flat at 285.8bps.

AUSSIE BONDS: Aussie bond futures traded in quiet fashion today in lockstep with the US, with the 10year sticking to a 4 tick range. The space saw little reaction to the government's mid-year budget update that saw a cut in forecast 2018/19 budget deficit & a bigger forecast 2019/20 surplus. 10-year yields are down 2bps on the day at 2.442%. The 1% rally in the stock market has also failed to weigh on the space. - The 3s-10s is down 0.2bps at 47.4bps, off its lows but the bearish trend continues with the April lows in sight. AU-US 10-year spread is down 0.2bps at -45.0bps.

STOCKS: Stocks of chopped around today but are broadly higher at writing thanks largely to a positive turnaround in Chinese stocks, which have recovered strongly off their lows, and the rise in US equity futures. - The CSI 300 has managed to remain above the 3130 level and the HSI above the 26000 level, preventing a resumption of the broader downtrend.

OIL: Oil prices remain stuck in their contracting range with Brent and WTI trading up a whisker as uptrend support from the lows remains intact. Brent sits at $60.31, up 3 cents, while WTI trades up 10 cents at $51.30.

GOLD: Gold is having a quiet session in line with the lackluster trading seen in US bonds, with the yellow metal last down $1.2 at $1237.8. The $1250 level continues to act as resistance with bulls failing to take out this level on a closing basis, which keeps the 200-dma intact. The collapse in US breakevens is acting as the main headwind to precious metal prices.

FOREX: G10 currency pairs operated within very tight ranges overnight, with no major data releases affecting price action and the news feeds staying relatively quiet. Kiwi underperformed, albeit modestly, despite briefly breaking above the $0.6800 in early Asia-Pac trade. AUD/NZD ticked up and last sits at NZ$1.0566. - The yen also struggled, as U.S. equity index futures & Japanese stocks drifted higher. The Nikkei 225 trades ~0.7% higher on the day at writing. - Sterling lost a handful of pips against most of its G10 peers, as markets absorbed headlines re: Brexit & PM May's cabinet fragility from over the weekend. - Worth noting Italian ruling coalition leaders reached an accord over a revised 2019 budget proposal.

Technical Analysis

BUND TECHS: (H19) BELOW 21-DMA NEEDED FOR BEARISH REVERSAL

Friday's recovery shifted the near-term outlook neutral, neutralising Wednesday's break below triple top neckline support. Bears now need to break below the Dec 12 low/21-dma at 162.53/46 to reignite downside momentum. Bulls look to close above 163.63 to extend the uptrend and open the Aug 17 highs on the continuation chart.

EUROSTOXX50: BEARS IN CONTROL

Eurostoxx dropped back below 3100 on Friday shifting the near-term outlook back to negative as bears look to challenge the 3000 level. Below here would open the Dec 2016 lows at 2984.48, further strengthening the medium-term bearish case. Bulls need to take out the 21-dma at 3132.08, above which would allow a challenge of down trendline resistance to target the Nov 8 highs at 3230.00.

Eurex Futures Market Close

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Innovative and reliable technology supplies about 400 participants and 7,500 traders in 35 countries with access to more than 2,000 products across nine traditional and alternative asset classes.

For further information please visit www.eurexchange.com

MNI

MNI subscribers make critical decisions with deeper insight and greater confidence. Pinpoint information and market-moving interviews let them react instantly to market changes and more importantly, anticipate future market moves. MNI reporters are market professionals in the news business. They work like journalists but think like traders. When interviewing Fed officials, our reporters ask the same questions you would ask. They cover the angles you would cover. Write the way you read.

MNI’s news services are now available via the IB Trader platform. Please click here to view our provider page or contact MNI directly on sales@mni-news.com or +1 212 669 6400 for our Americas sales team and +44 207 862 7408 for our EMEA sales team.

This article is from Eurex Exchange and is being posted with Eurex Exchange’s permission. The views expressed in this article are solely those of the author and/or Eurex Exchange and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


22016




Macro

Benzinga - These Were The 10 Most Actively Traded OTCQX and OTCQB Securities In November - By Spencer Israel


OTC Markets is a content partner of Benzinga

 

In November we wrote about October’s flight to safety in the OTC Markets, as multi-national conglomerates like Danone (OTCQX: DANOY) and BASF SE (OTCQX: BASFY) saw huge jumps in monthly dollar volume. This was a far cry from September when most of the securities with the highest dollar volume on the OTCQX and OTCQB markets were in emerging industries like cannabis and crypto.

According to data from OTC Markets, November was a bit of an amalgamation of the previous two months, at least on OTCQX.

 

OTCQX

Four of the top five stocks with the highest dollar volume in November on OTCQX were established corporations. Swiss pharmaceutical giant Roche, French food conglomerate Danone, and Spanish energy company Repsol S.A. all reprised their spots on the list, while German chemical giant BASF SE was replaced by British tobacco firm Imperial Brands.

At the same time, Grayscale-sponsored Bitcoin Investment Trust was the third most-traded security of the month. Over $276,000 traded in November, the most since August.

The changes to the top five signal that while investors are still favoring names in known industries, they are not quite done with sectors like crypto, despite recent headlines.

Company

Country

November Volume ($)

Roche Holding Ltd (OTCQX: RHHBY)

Switzerland

$661,432,699

Danone

France

$332,105,332

Bitcoin Investment Trust (OTCQX: GBTC)

USA

$276,976,942

Repsol S.A. (OTCQX: REPYY)

Spain

$186,104,485

Imperial Brands PLC (OTCQX: IMBBY)
 

United Kingdom

$182,737,306

 

OTCQB

The story on OTC Markets’ venture tier, OTCQB, is the popularity of government-sponsored mortgage giants Fannie Mae and Freddie Mac. Though cannabis stocks represent five of the top 10 most active stocks on the OTCQB last month, the common and preferred shares of Fannie and Freddie represented four of the top five most-active securities. $30.86 billion exchanged hands on the OTC Markets in November, and Fannie and Freddie accounted for just over $500 million of that volume.

This dramatic increase in volume came during a month in which homebuilder and housing sentiment dropped to a two-year low among consumers thanks to rising interest rates. At the start of November, interest rates for a 30-year fixed mortgage hit an eight-year high of 5.05, though it fell to 4.75 percent at the start of December.

Interestingly the two preferred shares outperformed their common share counterparts. Fannie and Freddie’s preferred shares rose 11 and 7 percent respectively in November, compared to common share declines of 12 and 8.5 percent.

Company

Country

November Volume ($)

Fannie Mae (OTCQB: FNMAS)

USA

$200,655,061

CV Sciences, Inc. (OTCQB: CVSI)

USA

$196,165,693

Freddie Mac (OTCQB: FMCKJ)

USA

$141,120,588

Fannie Mae (OTCQB: FNMA)

USA

$95,543,676

Freddie Mac (OTCQB: FMCC)

USA

$71,715,006

Click here to see the full list of November’s most active over-the-counter securities, along with their respective November dollar volume.

Click here to see the full list of October’s most active over-the-counter securities, along with their respective October dollar volume.

Click here to see the full list of September’s most active over-the-counter securities, along with their respective September, dollar volume.

--

Originally Posted on December 13, 2018

© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Benzinga is a fast-growing financial media outlet that empowers investors with market-moving content. The site also manages Benzinga Pro, a streaming platform with real-time headlines, data and actionable alerts. Sign up for a free trial and profit with faster news now.

An investment in an OTC security is speculative and involves a high degree of risk. Many OTC securities are relatively illiquid, or "thinly traded," which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. In some cases, the liquidation of a position in an OTC security may not be possible within a reasonable period of time.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Benzinga and is being posted with Benzinga's permission. The views expressed in this material are solely those of the author and/or Benzinga and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


22014




Macro

Schroders - How The Brexit Delay Has Moved Markets - And What It Means For The Economy - By Andrew Oxlade


As Theresa May meets European leaders seeking a better Brexit deal, the UK economy heads for a period of heightened uncertainty and stagflation.

 

  • Theresa May heads to Brussels to seek a new deal.
  • Sterling recovers after hitting a 20-month low against the dollar.
  • Domestically-focused FTSE 250 fell by nearly 2% on Monday.
  • Schroders Chief Economist suggests Bank of England may now "lean toward a rate cut".

Markets faced further uncertainty today after the Prime Minister Theresa May began a series of European meetings in the hope of securing an improved deal on Brexit.

However, Jean-Claude Juncker, President of the European Commission, this morning warned that the current agreement was “the only deal possible”.

Mrs May yesterday postponed parliament’s “meaningful vote” on the government’s proposed Brexit deal, accepting that the deal would be “rejected by a significant margin”.

She will meet European leaders including Angela Merkel today before heading to Brussels for talks with Mr Juncker and Donald Tusk, the president of the European Council.

The pound fell by as much as 1.8% against the dollar on Monday, taking it to $1.255, its lowest level since April 2017.  Sterling also slipped against the euro, edging close to the €1.10-mark.

 

The FTSE 100 index also fell yesterday, down 0.83%, even though UK stocks with international earnings normally benefit from falls in sterling. The FTSE 250, where fewer companies benefit from this effect, ended the day down 1.97%.

Gilt prices rose with the yield, which has an inverse relationship with price, falling seven basis points to 1.16%.

However, markets rallied this morning. By 4pm, the FTSE 100 was up by 102.3 points at 6,823.8, a rise of more than 1.5%.

Sterling had recovered some of yesterday’s falls, at $1.262 and €1.107 but demand remained weak. This weakness may explain some of the 

Here's what it might all mean from an economic and stockmarket point of view.

 

Keith Wade, Chief Economist at Schroders, said:

“Theresa May’s decision to pull the vote on her withdrawal deal from the EU means the UK now faces a prolonged period of uncertainty.

“The PM must get agreement from the EU on key changes to the deal in respect of the Irish border before going back to parliament. This will take time with talk of a vote in the new year.

“The deadline of March 29 will loom large and while the PM may use this to pressure MPs into accepting her deal rather than crashing out of the EU there will be more damage to the economy. 

“Recent data shows the UK decelerating rapidly as firms and households put spending plans on hold. Yesterday’s events will only reinforce this trend, with the added problem of a weaker pound which will feed through into higher inflation.

“The UK is in for a dose of stagflation – when low economic growth combines with higher inflation - leaving the Bank of England in a dilemma over policy, but probably leaning towards a rate cut in the new year as the data reveals the weakness of activity.” 

Issues for stock market investors to consider

The UK stock market has been increasingly shunned by international investors due to concerns about the unknown impact of Brexit negotiations.

Sue Noffke, Fund Manager, UK Equities, said:

“While the deferral of the 'meaningful vote' raises further political uncertainty as to the path and eventual outcome of any Brexit deal, the valuation of the UK equity market reflects considerable negative sentiment. 

"Global fund managers continue to underweight UK stocks, there have been substantial outflows from the market since the UK’s EU referendum and the UK stock market has seen a greater de-rating in the past two-and-a-half years compared to other equity markets.

“The UK equity market is not representative of the UK economy. The stock market is well diversified geographically, with just over one quarter of the revenues of the broad FTSE All Share Index derived from the UK economy. The balance of revenues, almost three quarters, are derived from overseas as a result of many multi-national companies being quoted on the UK index. The key factors dominating UK equity returns are therefore global economic activity, monetary policy globally and exchange rate movements rather than the performance of the UK domestic economy. 

“Weakness in sterling against other currencies boosts revenues, profits, dividends and values (in sterling) of the significant component of international companies quoted in the UK. This is supportive for the UK equity market as a whole in the event of a no-deal Brexit (international investors would need to hedge their currency exposure).

"In such a scenario large oil, pharmaceutical, consumer goods and business services companies would do well. Conversely, domestically-exposed stocks might be set to benefit the most from any, more positive Brexit news flow - favouring domestic banks and financials, house builders, property and construction companies among others.

“The level of pessimism towards the UK stock market is apparent when comparing the dividend yield gap between UK and global equities. The UK stock market has historically offered a higher yield than other regions; however, the premium is now at its most elevated in almost 20 years, at a level not seen since the 1999/2000 dotcom bubble.

“The UK market now has considerably more stocks with a price to earnings valuation of less than 10x - the highest number (83) outside the global financial crisis. Meanwhile, the number of high-rated stocks (with a price to earnings valuation of over 20x) has reduced substantially from its peak two years ago (127) to 76 today.  Most UK sectors are attractively valued relative to global peers. Indeed, there are good examples of both UK-focused and multinational companies based in the UK which are more lowly valued than their counterparts elsewhere.”

A price-to-earnings ratio, a measure of value, is calculated by dividing a company's share price by its earnings per share over 12 months. The same calculation can be applied to a whole market. A low number represents better value. It is only one method of valuation used by investors. Past performance should not be considered a guide to future returns and may not be repeated.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors. Forecasts included should not be construed as advice or recommendation.  

  • To find out more about our view on the UK's prospects, please see our Outlook 2019: UK equities, which was published last week.

--

Originally Posted on December 11, 2018

Please remember past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Schroders and is being posted with Schroders’ permission. The views expressed in this material are solely those of the author and/or Schroders and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


21998




Macro

BlackRock - 3 Market Themes Likely To Shape 2019


2018 has been a tough year to navigate financial markets. What’s the outlook ahead? Richard shares three market themes to focus on in 2019.

It has been a tough year to navigate financial markets. We have seen more than $6.9 trillion shaved off global market cap since the equity market’s peak in January, and many equities have sold off despite strong earnings reports. We may end 2018 with a rare event: negative annual returns for both stocks and bonds. The culprits: uncertainty over trade disputes, late-cycle concerns and tighter financial conditions.

Where to next? Roughly 100 BlackRock investment professionals recently gathered for two days to talk markets and the outlook for 2019. A major takeaway from our discussions: Three themes are likely to shape markets in 2019, as we write in our 2019 Global investment outlook.

 

Theme 1: Growth slowdown

We see a slowdown in global growth and corporate earnings in 2019, with the U.S. economy entering a late-cycle phase. Our BlackRock Growth GPS has been trending lower across the U.S. and euro-zone, pointing to a slower pace of growth in the 12 months ahead. We see U.S. growth stabilizing at a much higher level than other regions, even as the fading effects of domestic fiscal stimulus weigh on year-on-year growth comparisons. This underscores our preference for U.S. assets within the developed world. We expect the Chinese growth slowdown to be mild, as the country appears keenly focused on supporting its economy via fiscal and monetary stimulus.

Slowing growth and the impact of tariffs make for a more cautious corporate outlook, with global earnings growth likely to moderate. In the U.S., the expected slowdown partly reflects a higher hurdle versus 2018 when corporate tax cuts provided a big boost to company earnings. U.S. earnings growth estimates look set to normalize from a heady 24% in 2018 to 9% in 2019, consensus estimates from Thomson Reuters data show. This is still above the global average. Emerging markets (EM) are set to maintain double-digit earnings growth, led by China as its tech sector recovers and a pivot toward economic stimulus supports its economy. The U.S. and EMs remain our favored regions, as we see U.S. and EM companies best positioned to deliver on expectations. Yet we expect muted returns for both stocks and bonds in 2019 against a backdrop of slowing growth.

 

Theme 2: Nearing neutral

We see the process of tightening financial conditions pushing yields up (and valuations down) set to ease in 2019. Why? U.S. rates are en route to neutral—the level at which monetary policy neither stimulates nor restricts growth ­—and the Federal Reserve looks likely to pause its tightening process. Our analysis pegs the current U.S. neutral rate at around 3.5%, a little above its long-term trend. While uncertainty abounds over where neutral lies in the long run, our estimate sits in the middle of the 2.5% to 3.5% range identified by the Fed. We currently see a rate near the top of this range needed to stabilize the U.S. economy and debt levels. Yet we expect the Fed to become more cautious as it nears neutral. As a result, we expect the FOMC to pause its quarterly pace of hikes amid slowing growth and inflation in 2019. We see the pressure on asset valuations easing as a result. Europe and Japan will likely take only timid steps toward normalization. We don’t expect the European Central Bank to raise rates before President Mario Draghi’s term ends in late 2019.

 

Theme 3: balancing risk and reward

Recession fears are joining trade as a key market worry in 2019. Markets are vulnerable to fears that a downturn is near, even as we see the actual risk of a U.S. recession as low in 2019. Still-easy monetary policy, few signs of economic overheating and a lack of elevated financial vulnerabilities point to ongoing economic expansion in 2019. Yet the odds are set to rise steadily thereafter by our analysis, with a cumulative probability of more than 50% that recession strikes by end-2021. See the chart below.

Trade frictions and a U.S.-China battle for supremacy in the tech sector also loom over markets. We see trade risks more fully reflected in asset prices than a year ago, but expect twists and turns in trade negotiations to cause bouts of anxiety. Increasing uncertainty points to the need for quality assets in portfolios—but also potential for upside should market fears about trade ebb in 2019.

We advocate a barbelled approach for carefully balancing risk and reward: exposures to government debt as a portfolio buffer, twinned with high-conviction allocations to assets that offer attractive risk/return prospects. Quality has historically outperformed other equity style factors in economic slowdowns, our analysis shows. We see EM equities as good candidates for the other end of the barbell. What to avoid? Assets with limited upside if things go right, but hefty downside if things go wrong. We see many credit and European assets falling into this category.

Richard Turnill is BlackRock’s global chief investment strategist. He is a regular contributor to The Blog.

--

Originally Posted on December 13, 2018

Investing involves risks, including possible loss of principal.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

International investing involves special risks including, but not limited to currency fluctuations, illiquidity and volatility. These risks may be heightened for investments in emerging markets.

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