As always, it’s really difficult to say what a year will bring. We started the year coming off a fantastic 2017 with healthy amount of optimism that the same to repeat in 2018. However, what we have seen has been a turbulent 2018 with rising interest rate in the U.S., the rise of protectionism, the Brexit uncertainty as well as the slowdown of growth in China and emerging economies. As the year winds down to a close, let us take a look back at the events and trends that we have learnt so far this year.
1. The U.S GDP growth continued to accelerate to 3.0% in 2018 from 2.2% in 2017, as aided by the tax cuts enacted at the end of the previous year. Corporate tax rate was slashed to 21% and individual tax brackets and rates were adjusted lower too. Unemployment rate in U.S. also went down further to 3.7% in November 2018 – the lowest level since December 1969. Consumer spending has been strong throughout the year, but housing market is slowing as mortgage rates have increased 100 basis points since 2017.
2. In contrast to strong economic growth in U.S., the GDP growth from developed to developing countries were mostly slowed in 2018, including U.K., Germany, France, Japan, China, Taiwan and Philippines etc. Countries with weak balance sheet and twin deficit such as Turkey, Argentina, India and Indonesia have seen large capital outflow as foreign investors were fear their currency may continue to depreciate.
3. The FOMC has raised rates nine times, by 25 basis points each time since December 2015, including four hikes in 2018. Higher US interest rate has pushed up US bond yields as well as the dollar. However, the front-end of the U.S. Treasury yield curve inverted for the first time in more than a decade in early December, suggesting the recession may not be far away for the country.
4. The trade war began in June when President Trump’s decided to introduce tariffs on steel and aluminium, which caused tension with Canada and the EU, who proposed tariffs on US imports in return. The tension escalated between China and US in July, with Trump threatening to increase tariffs on $200 billion of Chinese goods from 10% to 25%. The G-20 Summit in early December has brought some hope to the market, as both countries agree to ceasefire for 90-day until 1 March 2019. Nevertheless, the trade uncertainty added to already growing concerns about slowing growth.
5. Commodities, for the most part, dropped by more than double-digits this year. Crude oil has been on a roller-coaster ride this year, which hitting a four-year high of $86.07 a barrel in early October, but then plunged by 38% to $53.38 in just 60-days. Gold is relatively better, as price starts to pick up in September amid recession concern, and down by -1.5% only.
6. All major equities market went into red in 2018. Until November, the American stock market had been something of a standout performer among global markets, but unfortunately it was not immune as the growth prospects of the country is fading. On the other hand, emerging markets performance was relatively better in recent U.S. market fallout as negatives are largely priced-in.
All in all, as we look to the year ahead, the lesson we learnt in 2018 remind us again that historical performance is no guarantee of future results. We should always not overly bullish to your investment decision and put all your eggs in one basket in today’s changing world.