Increasing uncertainties have led to a slowdown in global economic growth. The international trade war unsettles the export industry, tariffs make intermediate products more expensive and trade barriers hurt or even prevent investments. One month prior to the planned exit, it is still unclear when the BREXIT might happen and how it will look like. In the US, the debt ceiling has already been hit, threatening another "government shutdown" later this year. However, the upcoming events in the first half of 2019 could bring some light into the dark. The US trade negotiations with China seemed to make some progress in early March and the official deadline for a new round of US-tariffs on European autos and auto parts ends in May. Moreover, the elections to the European Parliament will be held in May as well. With the UK not participating, the BREXIT must take place in the middle of the year at the latest.
Even bad news can be more helpful to the markets than a high degree of uncertainty. Companies adjust to new tariffs and the new production environment. Investments that were temporarily postponed due to uncertainties and higher risk premiums, may be done in the following quarters. Against this background, the stock market rebound in the first months of this year seemed reasonable and in the absence of further "shocks" might continue for a while. The recovery of the stock markets is supported by the more cautious normalizing approach of central banks and the expectation of a succession plan for the TLTRO2, that would otherwise expire between in 2020 and 2021 respectively. In the US, the already very low unemployment, wage increases, and the diminishing effects of the tax reform start to limit excessive profit increases and the price/earnings-ratios are already high compared with their European counterparts, limiting the potential for further price gains. The European markets such as the Vienna stock exchange seems more promising. Although we expect some increases in euro-yields eventually, competition for stocks as investments is set to be limited for quite a while. Nonetheless, due to the long list of risks and the already advanced economic cycle in Europe, diversification of and in-between asset classes is highly recommendable.
Author:
Uta Pock
Head of Research
VOLKSBANK WIEN AG
5 March 2019
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Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.