Slower growth, a weaker dollar and ceasefire in the trade war: Here are BAML's top 10 macro calls for 2019

Jack Taylor/Getty ImagesI wish for 2019 to be ‘big’.

2018 is nearly over, much to the relief of many investors around the world.

After looking like it would be another repeat of 2017 given the enthusiasm seen in January, 2018 has proven to be anything but, characterised by increased volatility, geopolitics, less synchronised economic growth and higher interest rates.

It’s been an eventful year, at least compared to those seen in recent history.

The big question now is what will 2019 bring? An amplification of recent themes, or a return to the days of low volatility, predictable monetary policy and steady economic growth.

Bank of America Merrill Lynch (BAML) thinks knows the answer with its various asset and economics teams putting their collective heads together to come up with the top 10 macro themes it expects will dominate next year.

Here are they are in no particular order:

  • Global GDP growth at 3.6%: No global recession, but notable deceleration in global growth as 2019 progresses.
  • China GDP growth 6.1%: A “soft landing” in Chinese economic growth, aided by further monetary and fiscal stimulus.
  • Global EPS <5%: Global profits to decline sharply from >15% to <5%.
  • Fed funds rate at 3.5%: Four rate hikes by the Fed; US inflation to come in just above the Fed’s 2% target.
  • Quantitative Tightening: G4 central bank liquidity to contract by $0.2tn as ECB ends QE in 2019, but Europe and Japan rates to stay close to zero.
  • Credit spreads to widen: Supply and Quantitative Tightening to put 25-50bps upward pressure on IG and HY corporate bond spreads.
  • Trade war: We expect near-term macro and market weakness to force the US and China into a first half 2019 trade ceasefire.
  • USD bear: Expect a USD overshoot in early 2019, but thereafter a bearish year for the USD. CNY 7.0, Euro 1.25, Yen 105 by end-2019.
  • Commodity bull: WTI oil prices will average $59/bbl next year; a 2% rise in copper prices; gold prices are forecast to rise and average $1,296/oz.
  • Emerging Markets bull: A better year for EM debt and FX due to a weaker USD and the expected trough in Chinese economic growth.

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