Exposure rates of the Dorval Asset Management Range – 4th January 2019

2019 is picking up right where 2018 left off – after greater synchronized growth in 2017, followed by diverging trends between the US and the rest of the world in 2018, we are now getting to a synchronised slowdown in 2019.

US growth is getting back to its more usual pace due to the comparison with levels after last year’s tax cuts, the slowdown in world growth and the damaging impact of trade tension and political pressure on confidence, including the recent issue of the government shutdown in the country. The severe decline in manufacturing new orders in the December purchasing managers’ survey, shedding 11 points, flags the deterioration in the US economic outlook (cf. chart 1). However, at this stage it is difficult to expect anything more than just a blip, with job creation remaining robust after 312,000 new jobs in December, and wages picking up the pace, with an increase of 0.4% or 3.2% on an annual basis. The rise in jobless figures from 3.7% to 3.9% in December can be attributed to the discouraged unemployed returning to the job market, which is a fairly good sign for economic activity.

US manufacturing outlook normalises

ISM Purchasing Managers index
New Orders index

Economic activity remains sluggish in the rest of the world, although does not seem to be deteriorating further. Looking to China, the December Caixin manufacturing PMI dipped below the 50 mark to 49.7, while the services figure outstripped the consensus at 53.9 vs 53 expected and 53.8 previously. Meanwhile in Europe, the December composite PMI was down slightly to 51.1 vs 51.3, but stepped up both in Spain (53.4) and especially in Italy, where it moved out of its downward trend, reaching 50.0 vs. 49.3 previously. It comes as no surprise that the composite PMI declined in France to 48.7 as a result of social strife at the end of the year.

Against this backdrop, the world stock-markets had a shaky start to the year. Apple’s revenue warning had quite an effect, as the share price lost 10% in the day’s trading. Is this the harbinger of a fracture in world growth, or rather the end to the markets’ gradual correction – this will be the million-dollar question in 2019. Our assessment is that Apple’s share price decline is not the start of a downtrend but rather the end to corporate America’s period of astounding resilience (cf. chart 2): the company’s warning involved sales in China anyway, which can be attributed to US-China trade tension. Our scenario for a soft landing for the economy – more beneficial for the financial markets – does however hinge on an easing in political risk world-wide.


Heading for the end to US exceptionalism

Apple Inc.
MSCI Emerging Markets index (in USD)


Download the weekly letter in PDF version: Exposure rate Dorval Asset Management range - 4th January 2019


Let us provide you with a customized discovery by giving us some clarification.

Choose your profile