Taimur Baig, Chief Economist

DBS Group Research

Peak USD, peak rates, peak growth, and peak earnings? Will an asset market correction upend fed policy normalisation? How much will declining oil prices help EM? Where will we see fiscal support?

  • We address these questions in our 2019-20 Outlook, covering 13 countries and 4 asset classes
  • Ongoing slowdown in China and late cycle dynamics in the US will direct asset prices
  • Stay long USD, short duration, and cautious about equities and credits
  • As 2019 progresses, markets will begin to price in a slowdown scenario
  • All of this will keep volatility high, in our view

Has the cycle peaked, with China and US slowdown ahead? Have we reached peak USD, peak rates, peak growth, and peak earnings? Will an asset market correction upend the US monetary policy normalisation cycle? How much of a toll would the trade wars take? Will declining oil prices help emerging markets, offsetting likely downside to income and investment in the commodity space? Where do we see pockets of fiscal support? Which elections are potential game changers?

We address these questions in our 2019-20 Outlook, covering 13 countries (G3+Asia10) and 4 asset classes. Faced with fading momentum, the best one can expect from the global economy is an orderly slowdown, helped by prudent policy calibration. Ongoing slowdown in China and late cycle dynamics in the US will direct asset prices, in our view. Staying long USD, short duration, and cautious about equities and credits are strategies for next year, but as 2019 progresses, markets will begin to price in a slowdown scenario, taking steam away from t USD and rates. All of this will keep volatility high, in our view.

There are some potential positives for Asia: (i) low oil prices will help keep inflation down and ease BOP pressure, softening policy tightening bias; (ii) asset market sell-off from 2018 may bring back value-seeking investors; (iii) as the realisation that using China as an exporting hub is going to be challenging going forward sets in, ASEAN economies may see trade diversion related investment; and (iv) in some economies, fiscal policy will likely be eased (China, India, Indonesia, and the Philippines).

Key risks to this scenario are: (i) strong wage pressure pushing up rates in the US, strengthening the USD, tightening dollar liquidity, causing funding distress worldwide and (ii) China-US conflict hurting investment, tipping the world toward a sharply lower growth trajectory.

For the full report, please click here (PDF, HTML)

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