Three themes for 2019; Pause Patrol, War Off/On, and Cracked China

From time to time it is a useful exercise to take stock of what sellside macro consensus views are. The beginning of a new year where the sellside provides its outlook for the next 12-months is one of those times. Dario Perkins and the team at TS Lombard have done that job for us already in this note entitled ”Three Themes for 2019.” The way they put it, the sellside has struggled for creativity in recent years. According to the large number of 2019 publications they’ve reviewed, the consensus expects the next 12 months to look exactly like the last 12 months, which – they remind us – was exactly what they were also saying 12 months earlier. In other words, consensus forecasts are basically just a random walk, Perkins writes. To summarise, Perkins observes that most economists expect global growth to moderate (a little) further in 2019, with inflation (a little) higher and monetary policy (a little) tighter. Analysts expect risk assets to rise, but with low single-digit returns. They expect bond yields to remain broadly flat and the dollar to depreciate slightly. While some sellside strategists are prepared to use the ‘R’ word (recession) and plenty talk about ‘volatility’, most think the serious macro trouble will be deferred to 2020 (a year later than they previously assumed). Perkins suggest that if you are a contrarian, you should love this dull consensus because it suggests 2019 will be a year for big surprises. But in which direction? he asks. And that is the purpose of this report, which discusses three policy decisions that could swing the outlook either way, starting in the United States with the Federal Reserve, the global trade wars and Chinese policy stimulus, otherwise named in this report; Pause Patrol, War Off/On, and Cracked China.