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Market – Rising risks in Western markets?

Mon 14 Jan 2019

Will the global economic outlook darken further in 1Q2019? According to an analysis, whether a recession looms in the US will be a key topic of discussion this week when major US banks such as JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS) report earnings from the final three months of 2018.

American banks have the unenviable job of convincing a jittery US public that the US economy remains strong and can keep growing.

 Concerns about whether the economy can continue expanding have gripped US investors in recent weeks, and spurred erratic swings in global markets.

Such fears threaten to weigh on US banks this year, because their performance is closely tied to the health of the economy.

Bank profits suffer when the economy stumbles and businesses are scared to borrow. They become especially vulnerable when a recession hits and some customers aren’t able to pay back loans.

According to a report, US banks brought in record profits in 2018 according to data from the Federal Deposit Insurance Corporation.

In the third quarter of 2018, FDIC-insured banks reported $62 billion in profit, an all-time high and up nearly 30% compared to the previous year helped by President Donald Trump’s corporate tax cuts and the buzzing economy played a role.

However, US bank shares have sagged, trailing the market amid apprehension about what could be coming down the pike. The financial sector (XLF) fell almost 15% in 2018.

The stock market has also mostly ignored the partial US government shutdown.

According to an analysis, the economic impact of a multi-week shutdown so far has been minimal but the shutdown could start to drag down the US economy if it continues.

Meanwhile, it was reported that the German economy is in trouble, and economists are worried Germany may be potentially entering a recession as well.

On Tuesday, Germany’s statistics office will release its preliminary estimate of fourth-quarter GDP. German industrial production had fell in November, the worst decline since 2009.

 Economists typically consider a recession to begin after two consecutive quarters of shrinking economic output. The German economy shrunk 0.2% in the third quarter, so this would mark the second straight quarter of economic declines.

Will it get better for the US and Europe markets or will it get worst before it gets better? One should monitor the critical and trend levels of these markets as their performance in early 2019 may be a harbinger of what’s to come a few months down the road.

Here is the state of the markets in these two big economies and a likely break of key critical levels would be dangerous after their rebound rally recently. In fact, their long term trend is very clear.

How will their trend relate to the current outlook for FBM KLCI and the local market? Should you be worried for the state of the local market or will the rally in certain local sectors continue from last week?

Outlook for US and Europe markets (Mon 14 Jan 2019)

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Outlook for major KLCI indices (Mon 14 Jan 2019)

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Note: Certain info presented in the tables above has been redacted to comply with the agreement with elite members of the mPower Algorithm program and mPower Trading program and certain institutional clients. The above analysis reflects our personal view only and is subject to terms of use. Please refer to the full report inside for the complete info.

Follow closely the developments of these markets further at mPower Algorithm and mPower Trading as they are anticipated to move and breakout of their key critical levels to reflect a new state of direction soon.