- As the tide of easy monetary policy slowly goes out, global markets face another challenging year.
- Yet 2019 will be very different from 2018, as the US economy is set to fall off its pedestal; the Fed will pause this summer, if not before. The great regional divergence of 2018 will thus end, and with it the impressive USD rally. This should bring selective relief to Emerging Markets, assuming the world economic landing continues to be soft.
- As the US economy soon celebrates its longest cycle ever, fears of a downturn will not vanish. This creates a toxic asymmetry for risky assets: limited upside, larger downside.
- Yet there is too much pessimism about a global – and more particularly European – hard landing just now: the late 2018 capitulation has created oversold conditions. We will start with a prudent overweight in equities and credit. Qual-ity will be of the essence in 2019, like in all late cycles. We retain a long cash position, as well as a short in EUR Go-vies. We go nimble on duration, and see better value in playing that through derivatives.