Global Liquidity Market & Portfolio Commentary - J.P. Morgan Asset Management

Global Liquidity Market & Portfolio Commentary

Q1 2019 in Review: From Risk-Off to Risk-On

In Brief
UK & Europe
  • The market mood shifted from risk-off in late 2018 to risk-on in response to the Federal Reserve pausing rate hikes in January. Recession fears returned in March.
  • In the eurozone, the downward trend in economic data plateaued and then resumed. The European Central Bank (ECB) announced in March that it will support bank refinancing sooner than expected, which led bond markets to slump. Pricing suggests the market expects no ECB rate hike for about 18 months.
  • In the UK, everything still hinges on ongoing Brexit negotiations. The Bank of England said it would tighten gradually assuming a smooth Brexit scenario while market pricing suggests no rate rise for nearly five years. We think a Brexit deal will be reached.
  • Our portfolios tilt to higher quality, with relatively short duration as a hedge.
  • The first quarter was a complete reversal of the volatility we experienced in 4Q18 with sentiment turning positive and strong performance from risk assets.
  • Economic data released in the first quarter supported our expectation that growth will be slower this year than in 2018. Residual seasonality, the government shutdown and tighter financial conditions all put a drag on first-quarter growth.
  • The Fed kept rates unchanged at its March Federal Open Market Committee (FOMC) meeting, a move that was widely anticipated, but turned more dovish than expected by lowering its forecast for rate hikes from two to zero in 2019, and announcing its intention to end balance sheet runoff in September of this year.
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