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Cross-Asset Weekly

Markets are getting nervous as headwinds build

Basel, 12.10.2018
Equity markets corrected this week and apparently priced in a cocktail of risks that were known for a while and in isolation would only be mildly toxic: Namely, the continuation of the US-China trade war, a populist fiscal policy agenda in Italy, higher oil prices, increasing real Fed Funds rates and bond yields as well as lower central bank liquidity injections. We acknowledge that these factors are here to stay and to remain a headwind for markets.
But having reviewed our macro scenario, we did not change any of our macro forecasts this month. Notably, a strong US economy and increasing inflationary pressures should lead the Fed to hike three times in 2019 and to somewhat higher Treasury yields in the coming months. Historically, equity markets have shown a positive trend until a few months before the end of the Fed-hiking cycle. We expect a similar development in this cycle, with positive earnings trend over-compensating for the above-mentioned risks. As a result, equity prices should be higher by the end of this year, particularly in the US.
In Europe, economic data for the manufacturing sector have been disappointing and indicate a weaker Q3. Again, we believe that current economic conditions provide a fertile ground especially for internal demand, while more moderate dynamics in some emerging markets might weigh on net trade.

This week’s highlights


Global Macro – Monthly forecast update
Weaker global growth in 2019 to weigh on risk assets

Rates and Currencies
US equity market jitters put a temporary cap on yields

Emerging Markets
China is manipulating the economy not the currency

Economic Calendar
Week of 15/10 – 19/10/2018

Market Performance
Global Markets in Local Currencies

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Further information
Dr. Karsten Junius, CFA  |  Chief Economist

T: +41 (0)58 317 32 79 | E-mail: