20181205-法国巴黎银行-MARKETS_CALL_2019_GLOBAL_ASSET_ALLOCATION_31页_1mb

BNP PARIBAS MARKETS CALL Summary

Core Content

BNP Paribas Markets Call provides a weekly cross-asset market view for 2019, highlighting the global economic slowdown and its impact on various asset classes. The report discusses key trends in equity markets, government bonds, credit, and FX, along with the associated risks and outlook for the year.

Main Views

Global Economic Slowdown

• The global economy is experiencing a synchronised slowdown, with global growth expected to decline from 3.7% in 2018 to 3.4% in 2019.
• Inflationary pressures are increasing due to elimination of economic slack, leading to rising interest rates in both the US and Europe.
• The output gap is expected to increase slightly in the Eurozone (from -0.4% to 0.0%) but remain negative in the US (from -1.7% to -2.1%).

Interest Rates

• US 10y bond yield is expected to rise to 3.5% by the end of 2019.
• Eurozone 10y Bund yield is expected to reach 1% by the end of 2019.
• Real policy rates are expected to rise in both the US and the Eurozone due to inflationary pressures.

FX Outlook

• USD strength is expected to persist into early 2019, but will reverse by the end of the year.
• EURUSD is projected to reach 1.25 by the end of 2019.
• USDJPY is expected to fall due to a weakening USD and a stronger JPY.
• GBPUSD is likely to remain weak due to Brexit uncertainty, with a potential rebound if Brexit is resolved by Q1.

Equity Markets

• Global equities are expected to trend lower due to weaker growth and rising volatility.
• US equities are expected to underperform due to softer growth and pressure on margins.
• Eurozone equities are cheaper on an ERP basis and may see retracement if political risks are resolved.
• Japanese equities are expected to face headwinds from end of Abenomics and a stronger JPY.
• Emerging Market (EM) equities are expected to perform better in 2019 due to a weaker USD, but dispersion across EM markets is still expected.

Credit Market

• Credit spreads are expected to widen in 2019 due to tightening financial conditions and weaker credit fundamentals.
• US Investment Grade (IG) bonds are expected to underperform due to rising rates and weaker growth.
• US High Yield (HY) bonds are expected to face pressure from high leverage and lower coverage ratios.
• Eurozone IG bonds are expected to marginally outperform US IG bonds.
• Eurozone HY bonds are expected to face headwinds from weaker growth and tightening financial conditions.

Volatility and Risk

• Volatility (VIX) is expected to rise due to weaker growth and tightening financial conditions.
• Value at Risk (VAR) is expected to increase, reflecting higher idiosyncratic and political risks.
• Event risks are likely to remain high in Q1, especially due to Brexit and EU elections.

Key Information

Key Contributors

• Robert McAdie – Chief Cross-Asset Strategist
• Pierre Mathieu – Senior Cross-Asset Strategist
• Benedicte Lowe – Cross-Asset Strategist
• Kris Gjini – Cross-Asset Strategist

Market Outlook by Asset Class

Political and Economic Risks

• Italian budget is expected to cause short-term volatility in BTP-Bund spreads.
• Brexit uncertainty is likely to persist, with a higher risk of a no-deal.
• EU elections may increase political risks and test the resilience of mainstream parties.
• China’s slowdown and deleveraging pose a risk for EM credit bonds.

EM Outlook

• EM markets are expected to recover in 2019 due to a weaker USD and fewer rate hikes.
• However, dispersion across EM markets is still expected, and China's economic weakness may impact performance.
• Stable RMB is expected to provide support to the global EM outlook.

Conclusion

The report highlights that global economic slowdown and rising interest rates are key headwinds for 2019. Equity markets are expected to face pressure from weaker growth and increased volatility, while credit markets will likely be affected by widening spreads and higher leverage. FX markets are expected to see USD strength in early 2019, followed by a weaker dollar by year-end. Emerging Markets are expected to recover but face significant dispersion and China-related risks. Political risks remain a major concern, especially in the Eurozone and the UK.