By DAR Wong
After the US Federal Reserve raised another 25 basis point in benchmark rate on 19 December 2018, the US market went into a selling frenzy. Many traders expected the market would continue sliding into the new year of 2019. Fortunately, the US market still managed to hold the bears at bay.
Ironically, we are not skeptical of a long-term bearish trend is already in the making now. However, we reckon that January will be a month of recovery with bargain hunting expected to emerge in the market. This could prop up sentiments which would spread to European and Asian equities, though we expect whipsaws to continue.
Fundamentally, there is still not much reason to prompt further: US 10-year bond yield is trading healthily below 3 percent. In fact, the floating yield is wading below 2.7 percent in January, indicating a very sound economic environment for the US economy. Therefore, there should less worries of continuing bear market in January.
Going forward in 2019, following the Federal Reserve’s guidance, we could anticipate another two interest rate hikes in March and June. Following which, we should turn wary of the eventual rise in the US Bond yields. The US 10-year bond yield going above 3.5 percent benchmark could trigger global market meltdown.
In the whole of 2H18 last year, global investors were mostly cautious and stayed dormant due to the heated conflict of US-China trade war. Currently, the temporary truce of “ceasefire” between the two countries for 90 days will be another good reason for a softer US Dollar and hence flight of funds back to the stock markets!
In 1Q19, we foresee a good ride in the short-term recovery in most of the global equity market. In our opinion, Gold will reach US$1300/oz or near to this level. Crude oil prices should be supported by lower US Dollar, in conjunction with the OPEC cutting global supply (along with Russia) from this month onward, moving back to US$60/barrel.
Nevertheless, do not be complacent and ignore risk management. In our broadest view, the US Dollar might sink lower and pull up the Japanese Yen and Chinese Yuan. European economy will remain uncertain as BREXIT will trigger various market risk while subject to the final negotiation of backstop issue in Northern Ireland.
In our opinion, investors should take profit before 2Q19. The second quarter will be filled with many impactful geopolitical events like BREXIT, as well as general elections in Indonesia and Philippines (both are huge producers of farm commodities).
Undoubtedly, 2019 will be a rollercoaster ride. Apart from 1Q19, we foresee the rest of the year to be tough for many conventional investors. Higher gains will naturally come at higher risk in your portfolio. Do not underestimate the market risk when you start to hear new European debt crisis resurging. Be afraid to lose your monies. Trade well.
~ DAR Wong is a veteran in global financial markets based in Singapore. The opinions are solely at his own. He can be reached at firstname.lastname@example.org