For markets at least, 2019 has got off on the wrong foot.
With Asia leading global markets lower this morning , and fears of a U.S. recession hovering in the background, our first call of the day of 2019 comes courtesy of JPMorgan’s JPM, +0.82% head of fixed income Robert Michele.
He thinks such fears are overdone. “Simply looking at the markets would suggest that the global economy is headed into recession”, he wrote in an investor note just before the New Year break. “However, while we agree the global economy is in a growth slowdown, we don’t see an impending recession.”
Michele sees plenty of reasons for investors to worry, including a “gridlocked Congress” that will mean “no further fiscal stimulus, no Tax Reform 2.0 or infrastructure spend, and a trade war between the U.S. and China would mean less trade.”
But he continues: “An adequate monetary policy response should have the ability to cushion the slowdown and assure a soft landing. Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalize policy. We think the Fed is headed to two more hikes (following one in December 2018) and a level of 2 ¾%–3%. But the markets would certainly embrace a dovish hike…and what if the Fed also indicated a willingness to end the balance sheet rundown?”
He adds that “outside of the U.S., the central banks remain very accommodative”, and this should help keep the global economy “hovering” at its trend growth rate in 2019. The U.S.’s expansion is set to slow from 3%-plus to 2%-plus, he reckons.
And J.P. Morgan’s bonds desk is backing up its words with action—it is “picking through” securitized credit, emerging-market debt and high-yield bond markets for buying opportunities, Michele said.
The markets
European markets’ 2019 debut was negative on Wednesday. The Stoxx Europe 600 SXXP, -0.64% lost 1.1% to 334.03 after finishing 2018 down 13.2%.
The falls followed a poor day of trading in Asia as gloomy investor sentiment weighed on markets. Asian stocks tumbled after surveys showed Chinese manufacturing weakening.
In Europe, a temporary administrator has been appointed by the European Central Bank for the troubled Italian lender Banca Carige SpA CRG, +15.38% after the majority of the bank’s board members resigned.
The euro EURUSD, -0.4535% slid to $1.1429 from $1.1466 late in New York on Tuesday. The GBPUSD, -0.7375% fell to $1.2688 from $1.2745.
The buzz
In the U.S., President Donald Trump has ramped up pressure on the Democrats in an attempt to secure funding for a border wall between the U.S. and Mexico, inviting them to a bipartisan meeting at the White House amid a partial government shutdown, The Wall Street Journal reported .
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