Commodities markets will be the ones for investors to watch in 2019 as share markets begin to grapple with the prospect of a global recession. It seems far-fetched at the moment, but with the FTSE 100 starting the trading year down 1.7% following poor manufacturing numbers from China, many investors are already turning to gold, which is currently at a six month high.
Managing Partners Group (MPG) announced over the Christmas break that it expected the inflation-proofing qualities of commodities like gold and oil would appeal to investors fleeing over-heated US stocks, and forecast that gold prices could be looking at a 20% upside for 2019. Gold prices have already seen some considerable gains in December and show no sign of losing steam.
The other key question will be oil prices – global recessions tend not to be kind to oil, but MPG reckons that diminishing spare capacity, sanctions on Iranian exports and political uncertainty in Saudi Arabia will all play a role in pushing oil prices higher. We are not seeing that at the moment, with Brent Crude down at $53.24 at the time writing. This follows a staggering decline from over $85/bbl in October which oil bears should have profited from in Q4.
“Key drivers of an equities bear market will be Brexit uncertainty, further tightening of monetary policy on both sides of the Atlantic, political gridlock and trade tensions – all forcing equity values lower in the UK, Europe and the USA,” says Jeremy Leach, CEO at Managing Partners Group. “While many analysts think the S&P 500 will end 2019 higher than its current level, this is optimistic given that recession is widely predicted for 2020 and a bear market for US equities is more likely in 2019.”
Leach thinks that European equities are still overpriced and says the Eurozone is going to experience slower growth in 2019, owing to monetary policy tightening, the cessation of quantitative easing, trade frictions and the “unsustainable debt dynamic in Italy and Greece.”
Brexit is going to remain front and centre for UK traders in Q1 as Parliament and the government struggle to come up with a deal that a majority of MPs can sign up to. MPG is optimistic that a better deal will be achieved as a no deal scenario does not help any of the parties, including the EU.
“A reasonably successful exit in Q2 will not lead to long lasting euphoria in Europe, however, and will be one of a number of factors stimulating continued political unrest in the bloc,” Leach adds. “With a successful Brexit concluded, there is a real risk of another potential departure from the EU that may even threaten the future of the currency Union.”