CROSS-ASSET ANNUAL ROUNDUP: WAS 2019 A PIVOTAL YEAR?

Despite an accumulation of risks at both political and macroeconomic levels that persisted throughout much of the year, for many asset classes 2019 proved to be one of the best vintages since 2013. While part of the gains made up for the excessive pessimism that prevailed in the final months of 2018, it was a case as before of deliverance coming first and foremost from a considerable easing of monetary policies in 2019. The pro-Brexit outcome in the UK and the imminence of a US-China trade deal were the final catalysts behind the surge enjoyed by risky assets. All in all, whether it be equities, cyclical commodities, credit or govies, significantly positive performances were recorded. Many of the predictions made in 2018 – normalisation of monetary policies by the Fed and ECB, QE exit, upturn in interest rates, resurgence of inflation – came unstuck in 2019. In fact the storyline was quite the opposite , as 2019 confirmed t he persistence of the low interest rate environment , so too of the US cycle, with concerns over an imminent recession and steepening of yield curves subsiding. In the wake of the 2019 rally, investors now face an environment characterised by a renewed compression of risk premiums. Macroeconomic and microeconomic prospects remain solid, but asset allocation promises to be a complex process, as just about all asset classes are now richly valued (in particular € bonds, $ equities and the US dollar) and carry opportunities are more and more limited .