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Market – IMF cuts global economic growth but how will markets react?

Tue 22 Jan 2019

The International Monetary Fund (IMF) revised down its estimates for global growth on Monday, warning that the expansion seen in recent years is losing momentum according to media reports.

It now projects a 3.5 percent growth rate worldwide for 2019 and 3.6 percent for 2020. These are 0.2 and 0.1 percentage points below its last forecasts in October — making it the second downturn revision in three months.

In October, the IMF had cut its global growth forecasts on the back of increased trade tariffs between China and the United States. It said the latest revision is due in part to carry over from last year, mentioning weakness for German auto manufacturers due to new fuel emission standards, and soft domestic demand in Italy after recent sovereign and financial risks.

 

It also highlighted weakening sentiment in the global financial markets and a contraction in Turkey that’s now projected to be deeper than anticipated.

According to the IMF, advanced economies have been on a declining path in terms of growth and this is taking place more rapidly than previously thought. These countries are forecast to grow 2 percent this year and 1.7 percent in 2020.

At the same time, there’s also been a growth slowdown in emerging economies. The IMF projects a 4.5 percent growth rate in 2019, from 4.6 percent in 2018, before improving to 4.9 percent in 2020.

 

There are also a number of flashpoints that could lead to even lower growth trajectories across the world, especially given high levels of public and private debt, the IMF said.

These potential triggers include a “no-deal” Brexit for the U.K. and a deeper-than-envisaged slowdown in China.

China had on Monday announced that its official economic growth came in at 6.6 percent in 2018 — the slowest pace since 1990.
Economists polled by Reuters had predicted full-year GDP to come in at that pace, which was down from a revised 6.8 percent in 2017.

It was reported that China is trying to balance a crackdown on high debt levels while also maintaining economic growth.

While reducing reliance on debt would benefit the economy in the long run, it likely means a far slower pace of growth than the country has seen in recent years.

How will these seemingly bearish news affect the performance of global stock markets in the medium term? Are they ahead or behind the curve?

Given the rising volatility, it is imperative that traders need to have more than a short term outlook on the market to manage their portfolio.

Is the recent rebound in the global stock markets a bear rally or a resumption of the bull run it had seen for the past many years?
Check out the table below and decide for yourself after looking at the data. At which level will the markets around the world give you the confirmation you need?

 

Global markets outlook Tuesday 22 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.

 

The local market has also rebounded in tandem and elite traders would have caught the best sectors to trade on based on our overall sector outlook.

Which sectors are poised to outperform and which one is likely to retrace or stay weak?

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However, all is not clear as there are critical levels to surpass just as the bulls get hot.

Should you get in or get out at this juncture in the market as the FBM KLCI nears the psychological 1700 mark? The grass is always greener on the other side or are they?

Should you focus on individual stocks or the broad market outlook?

If you are missing these information, it would be very difficult to trade as you would be fighting against the bigger trend instead of plucking the low hanging fruits.

You can follow the daily and intra-day updates at mPower Algorithm and mPower Trading as we use both human and machine skills to navigate the market and thrive.