18 December 2018
Jobs situation in the US has improved markedly, helping shore up consumer confidence in the country. Photo: Bloomberg
Jobs situation in the US has improved markedly, helping shore up consumer confidence in the country. Photo: Bloomberg

Why markets may recover further after the dismal 2016 start

Stock markets enjoyed a rebound recently on easier monetary policies in Europe and Japan and expectations that the US Fed will go slow on further rate hikes in view of global uncertainties.

The market recovery, however, hasn’t allayed concerns over bank profitability and financial stability.

Investors had been worried about the prospects for developed economies, apart from China worries and low commodity prices. This has caused a dismal start for risky assets in the new year.

But PMI figures show that mature economies still have great potential to grow.

The US residential property and employment markets data have been good recently.

The jobless rate in the world’s biggest economy has fallen to below 5 percent, and workers’ salaries have been picking up.

In Europe, the consumption sector is steadily expanding, despite some negative impact from the problems in China and other emerging markets.

In terms of monetary policy, most of the global central banks plan to maintain a loose environment.

As of the end of February, positions taken in the futures market suggest that many traders expect the Fed to hold off on rate hikes this year and for the European and Japanese central banks to unveil more monetary easing measures due to lower-than-expected inflation figures.

As for China, stable development is a key.

We believe that even though the government may have to slow the opening up of its financial account, authorities will still be able to avoid large-scale depreciation of the currency.

If the pace of dollar appreciation and US interest rate hikes slow, pressure on the renminbi exchange rate may come down a bit.

Another issue is oil prices and supply.

Presently, an oversupply has resulted in keeping global oil prices very low. Most of the oil producers are struggling, with some facing heavy fiscal pressure.

The lifting of economic sanctions on Iran and the OPEC’s refusal to cut oil output made the problem more complicated.

Meanwhile, slower global economic growth may lead to less demand for crude oil and worsen the oversupply situation.

We believe that in the short term, oil prices will remain low. However, prices may gradually return to reasonable levels later due to falling capex in the industry. 

In the stock markets, pessimism over global growth has led to scaled-back expectations for corporate earnings growth and lower valuations for companies.

Investors appeared to have over-reacted to the negative news.

But risk appetite may re-emerge given the robust PMI, industrial production and other data in recent days, as well as potential new government stimulus measures.

This article appeared in the Hong Kong Economic Journal on March 14.

Translation by Myssie You

[Chinese version中文版]

– Contact us at [email protected]


Managing Director, Chief Market Strategist, Asia, J.P. Morgan Asset Management

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