Major Themes for 2018
In years to come, when looking back, (hindsight being a wonderful thing) there are going to be a number of dominant themes which affected markets in 2018. One of those, namely the threat of impending increases in interest rates in the US, was clearly evident this week as Federal Reserve Chair Jerome Powell hosed down the market's hawkish expectations, resulting in a massive "relief rally" as equity investors, who had been nervous all year, pinned their ears back and pushed the market sharply higher.
Unfortunately one of the other big themes (or concerns) hanging over the market, namely the impending US/China tariff war, overcame their optimism ahead of the G20 meeting in Argentina. Welcome to Donald Diplomacy, Huff, Puff and Threat. Every war has an armistice, and in this case it remains to be seen if the initial skirmishes and threats prevent the war actually starting, or whether it will escalate come January 2019.
However, if the messages out of the G20 are positive, particularly if added to the Fed's more benign outlook, then expect a bumper Christmas rally to end the year.
In Australia, one of the great themes of the year has been the revelations from the HRC, with the final round of public hearings concluding today ahead of Commissioner Hayne's final report due in February. With the exception of Macquarie's Nicholas Moore, none of the bank CEO's or Chairmen did their (or their organisations') reputations any favours. In particular Ken Henry shone for all the wrong reasons when he presumably decided he'd had enough of copping flak, and was going to take a different approach. We'd rate his performance as a 9/10 for effort, and a 1/10 for success.
The other theme for 2018 was falling residential property values. Combining the problems of the banking and financial services sector with an over-indebted consumer, an oversupplied market well overdue for a correction, and brakes put in Chinese buyers' access to credit, resulted in the inevitable correction which will no doubt continue for at least a year, and possibly more.
Finally, politics will go down (unfortunately) as a theme to remember for 2018. Be it The Donald, Brexit, or the revolving door at the Lodge, it is not encouraging optimism.
As we said at the beginning, hindsight's a wonderful thing. Predicting the future is fraught with difficulty, so we'll leave that to another day!
