After the US Federal Reserve raised another 25 basis point in benchmark rate on December 19, the Dow Jones markets went into a selling frenzy and irked US President Donald Trump. Many traders expect the market to continue its selling streak after the long holiday season. Fortunately, the market has just opened in early January and manages to hold the bears.
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 markets. Hence, the rippled sentiment will spread to European and Asian equities with some anticipated power to lift the bulls, despite some whipsaw trends might prevail.
Fundamentally, there is not much reason to pre-empt selling sentiment since the US 10-year bond yield is trading healthily below three per cent. In fact, the floating yield is wading at below 2.70 per cent in January which indicates a very sound economic environment in the US growth. Therefore, there should not be too much worries of continual bear market in January.
Moving into 2019, we would anticipate another two rate hikes will follow in March and June that mark the tenth and eleventh time of policy tightening. Fearfully, we should be wary of the eventual rise in the US bond yield when it comes to 3.30 per cent. Definitely, going above 3.5 per cent benchmark in the final episode will trigger a turmoil in the global stock markets.
In the whole of 2H18, global investors were 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 to soften the Dollar and flight of fund back to the stock markets.
In the Q1 season of 2019, we foresee a good ride in the short-term recovery in most of the global equity markets. In our opinion, Gold will somehow reach US$1,300 per pound or near to this level before it simmers down. Funds will move back to Crude prices as the US dollar recedes and also the OPEC has set to cut global supply with Russia from this month onward.
Nevertheless, do not be complacent and ignore your risk control in market. 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, all good profits should be closed before the first quarter before we head into another new season of rout. The second quarter will be filled by many global events like execution of Brexit, general election in Indonesia and Philippines that are huge producers of farm commodities. The policymaking of US officials are most crucial in leading us to the second semester of 2019.
This year will be laid with multiple roller coaster tracking and tightening of liquidity due to rate hikes. Other than a smoothening 1Q season, we foresee the rest of the year will be tough for many conventional investors. Higher gains will naturally come at higher risk in your portfolio. Do not underestimate the market fundamentals and risk when you start to hear new European debt crisis is resurging. Be afraid to lose your monies. Trade well.