It’s a tough time to be a share investor, the FTSE 100 embarking on another painful downleg in recent days (it reported its biggest one-day loss in the week just gone since the immediate aftermath of the Brexit referendum of summer 2016).
There’s a toxic concoction of macroeconomic and geopolitical problems that could keep stock markets across the globe under pressure in 2019 and beyond, and in previous articles I’ve looked at some of these, from the impact of Federal Reserve interest rate increases to the possibility of a disorderly Brexit.
Slowdown in Europe
It’s said that if China sneezes then the rest of the world catches a cold, and so fears over the impact of additional Fed rate hikes in 2019 — moves that would help reinforce the dollar — as well as an escalation of the trade tensions between Washington and Beijing have dominated news flow.
Underperforming economic growth in the third quarter has shown that the Chinese are already suffering, heightening fears of a catastrophic downturn in the Asian economy possibly as soon as next year. China is not the only critically important nation showing signs of strain, however, and investors need to keep a close watch on the eurozone as well.
Economic data from the continental block has been increasingly concerning as we have moved through 2018. But recent data surrounding Germany has taken the fear factor up a level or two, the continental colossus last month reporting a 0.2% GDP drop between July and September, the first quarterly decline for almost four years.
And data coming out of Germany, whether it be new car sales or industrial orders, has remained disappointing since mid-November, whilst economic readings from France and Italy have also been shocking the markets in recent times.
Political tension
The tense political environment in Europe adds another layer of risk for 2019.
Greece and its enormous debt pile remain a consideration, but the country isn’t the problem that it once was, the Mediterranean nation returning to bond markets this year and reporting some encouraging economic data like falling unemployment and GDP growth.
Athens may not be as hostile to the European Union as it was around the turn of the decade, but right now the southern eurozone countries remain a big headache politically. I’m looking at Italy more specifically and its fight with EU regulators to get its budget passed.
Another monumental political problem on the continent involves France and the way it deals with the gigantic Gilets Jaunes demonstrations. What initially started as a protest against proposed fuel tax rises has spread to broader protests about Emmanuel Macron’s leadership and inequality in France, leading many to cast doubts over the future of the French President.
The rise of populism on the continent has effectively taken the scalp of Germany’s Angela Merkel, once the political pivot upon which the rest of Europe turned, but who is now desperately hanging on for dear life. We’re looking at another year of significant social and political upheaval in 2019, and extra cause to expect huge turbulence on financial markets in the near term and beyond.