Business Case Studies

How watching market trends can help your business

Taking care of business often means taking care of more than just your business. When your company succeeds, it does so as part of a broader business ecology that includes not just other firms in your sector, but also the whole national and indeed global economy. Being aware of where that economy is headed, and how the financial markets are likely to react, can help your business stay one step ahead of the curve.

Uncertain times

Following a bullish 2018, with a general pattern of economic growth around the world, 2019 looks like being a much more uncertain time. Tensions between two of the planet’s biggest economic players, the US and China, have impacted on both countries. China has responded to the simmering trade war by reigning in credit, while financial tightening has taken place across the board in most major economies.

Over in Europe, the German auto industry has faced severe disruption. Meanwhile, the ongoing uncertainty over Britain’s likely exit from the EU, and how this will be managed, has affected the overall European economy as well as that of the UK.

Slow growth

According to the world economic outlook of the International Monetary Fund (IMF), an overall slowdown is expected to last throughout the first half of 2019, affecting 70% of the world’s economies. Global growth slowed in 2018 despite initial optimism, eventually moving forward by just 3.6%. In 2019, it is expected to slow even further, to 3.3%. This is 0.2% slower than was predicted in January, following downward revisions for the US, UK, Canada, Australia, Latin America and the eurozone.

Better times ahead

More positively, things should improve somewhat in the second half of this year. World banks are resisting taking inflationary measures, and China has responded to trade tariffs by increasing fiscal and monetary stimulus. If a trade agreement with the US can be reached, as is now looking likely, then the global economic outlook will be much improved as a result.

The Bank of England, the US Federal Reserve, the Bank of Japan and the European Central Bank have all acted to ease the financial tightening of the previous year. Economic trade and industrial production are still struggling, and investment is weak, which is why growth remains slow. Trading news is surprisingly bullish though, with currencies in emerging markets gaining strength against the dollar.

Predictions for 2020 suggest that emerging markets and developing economies will remain important. Global growth should return to 3.6%, based on the assumption that those developing economies will continue to improve and gain strength. The growth rate in these markets is expected to average at 4.4% this year and reach 4.8% in 2020. It is particularly hoped that Turkey and Argentina will rebound from their current macroeconomic stresses and that this will compensate for slower growth in the more advanced nations.

Market awareness

An awareness of these economic trends will help your business to adapt and to plan ahead. Raising essential financing will be easier if your business has a dedicated broker who understands the pros and cons of the different markets. The financial markets actually enjoyed an exceptional first quarter in 2019, with 37 out of 38 assets tracked by the Deutsche Bank showing a positive return.

Oil was the best-performing commodity, up 32.4%, while the stock markets were also bullish. This is welcome news after a tough 2018 for many investors. The big question is whether this upward curve will continue, as experts say that there is a 70% chance of the US stock market going into a downturn later in the year. Morgan Stanley has advised clients to shift their investments from US stocks to industries in other countries.

Of course, the rule of always maintaining a balanced portfolio remains, but we are already seeing a move towards the safer investments of bonds and cash. The forex market remains buoyant, despite the unsteady status of major currencies such as the dollar, pound and euro. As relative values shift, influenced by political decisions and world events, trading is still brisk.

Ultimately, we can see that while economic trends and financial market trends are both important, they don’t necessarily map onto each other. 2018 saw the global economy on a tentative upswing that has slowed so far this year. Yet last year was a difficult one for financial traders who have so far done much better in 2019. The economy certainly influences the markets, but not always in the ways that you might expect. An understanding of both is important for businesses to prosper and keep moving ahead.