Weekly: Playing with fire

A plethora of factors beyond economics will likely dominate the market narrative this year.
Taimur Baig, Duncan Tan10 Jan 2020
  • Bushfires in Australia and US-Iran tensions - 2020 has begun with plenty of heat
  • Oil and gold prices have turned volatile, but overall macro risks have not risen appreciably
  • Unless hostilities worsen, the narrative of a modest trough in global manufacturing remains
Photo credit: AFP Photo

Non-economic factors driving markets

The massive bushfires in Australia, partly driven by unusually dry conditions caused by climate change, has brought to the fore the costs of dealing with the ongoing climate crisis. As elucidated by our 2020 outlook’s title, “Beyond Economics,” developments like these are likely to increasingly drive market forces.

Last week’s US orchestrated assassination of an Iranian general and subsequent market gyrations also illustrate the power of election considerations and geopolitical rivalry to influence the market narrative.

These developments have generated plenty of heat in the news, but market risk perceptions rose only modestly. For instance, the spike in oil around the event has been modest.

It is too early to look past the tensions in the middle-east, but we would not want to ignore other key pipeline developments.

Global dataflow. We continue to expect a trough in glboal electronics and auto cycles, potentially boosting Asian exporters. Recent global PMIs already support the emergence of this outcome.

Additionally, the US seems to be past the soft patch encountered in the early part of Q4; a few more good data points will hasten the rise in long-term yields. Low interest rates, strong asset market gains, record high employment, and sustained wage gains could create room for upside economic surprise.

Capital flow to Asia. Led by China, India, Indonesia, and South Korea (and Taiwan in recent months) Asian economies are seeing a turnaround in capital inflows. We see this as supporting our hypothesis that 2020 will be characterised by flows from expensive developed markets to EM Asia.

Global liquidity. A trend that began midway last year has taken a major lower-for-longer dimension. Policy normalisation is being discounted by the markets almost entirely for the time being. The risk however is that strong US data, combined with progress on the trade front with China, ignites the reflation trade, pushing up long term rates and tightening dollar funding conditions worldwide.

US elections. Like him or not, Donald Trump has been good for US markets. As Democratic primaries begin, any rise in the probability of election of candidates like Elizabeth Warren and Bernie Sanders, who are pushing forward a tough stance on regulation and taxation, pose challenges to the market’s present exuberance.

To read the full report, click here to Download the PDF.

Taimur Baig, Ph.D.

Chief Economist - G3 & Asia

Duncan Tan

FX and Rates Strategist - Asean

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No.