J.P. Morgan’s eight key forecasts for 2019

08.01.2019

At the close of 2018, the J.P. Morgan Research team prepared the following key forecasts for 2019:

1. U.S. Equities

The current cycle is close to the longest uninterrupted expansion since 1860, which has caused anxiety among investors. At the same time, the present cycle has already experienced two intra-cycle resets, in mid-2011 and late-2015.

In 2019, fundamentals should remain healthy, while corporate earnings are expected to decelerate. Based on a probability-weighted analysis of U.S.-China trade outcomes (55% trade deal, 35% cease-fire, 10% tariff escalation), the 2019 S&P 500 price target was set to 3,100 and the earnings per share (EPS) estimate at USD 178.

2. Global growth

Growth in the global economy is set to ease off slightly in 2019. It will be 2.9% in 2019, slightly lower than the 3.1% forecast for 2018. Although the U.S. economy posted a boomy 3.1% in GDP growth in 2018, it is set to fall to a closer-to-trend 1.9% in 2019, as fiscal, monetary and trade policies start tightening up.

3. Europe – Brexit and Italy in the Spotlight

Political tail risks remain a headwind for European stocks. It is still unclear whether the current substantial Italian debt overhang is manageable. With regard to the U.K.’s exit from the EU, the probability of “no deal” in the first half of 2019 has gone down from 20% to 10%, while the likelihood of “no Brexit” has doubled from 20% to 40%.

4. China

Despite a 90-day trade truce and even a signed agreement between the U.S. and China, uncertainty remains high. Even with the agreement, confrontations may intensify again. The U.S.-China trade relationship will be a key driver of the Chinese equity market. The government are expected to lower the growth target to 6-6.5% in 2019, with J.P. Morgan estimating 6.2%, down from 6.6% in 2018.

5. Emerging markets

Their cyclical pickup is predicted to take hold starting in the second quarter of 2019. Latin America is the one region with modestly faster activity forecast for next year, as China is heavily contributing to the overall EM slowdown. In the equity market, EM stocks are expected to deliver double-digit appreciation, with Brazil, Chile, Indonesia and Russia as top overweight picks.

6. Commodities

The OPEC will cut crude oil supplies in order to support prices. Brent will average at USD 73 per barrel next year, with the average for 2020 seen at USD 64 per barrel. Base metals are expected to come under increasing pressure.

7. Currencies

The biggest change the J.P. Morgan team expects in 2019 will be the fading of U.S. economic exceptionalism. The dollar will be less supported against the euro and other developed market currencies in 2019, particularly in the second half of the year, but this is not expected to result in a broad bear market for the USD generally.

8. Global rates

J.P. Morgan projects 10-year U.S. treasury bond yields will rise to 3.6% by the end of 2019. In Europe, 2019 will be better than 2018 with 10-year German bund yields expected to hit 1%. In the U.K., 10-year gilt yields will be 1.75% in the second half of the year.

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