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2019: Another year of living dangerously? – Westpac

In view of analysts at Westpac, the annual growth of central bank balance sheets has shrunk, and this will continue as we move into 2019.

Key Quotes

“February's equity volatility coincided with annual balance sheet growth peaking, and the October/November volatility coincided with this measure approaching zero. With ECB set to ending its asset purchase program this month and the Fed balance sheet already declining, how will global markets react when quantitative tightening (QT) withdraws money from the system?”

“We believe this withdrawal of liquidity and central bank support is likely to remain a key challenge through 2019 and should underwrite higher levels of volatility. This is even before we consider that 2019 looks to be one of great uncertainty over the profile of the Fed funds rate.”

“The FOMC itself is likely to produce a very scattered “dot plot” next week. Overlay this with the prospect of another year of US-driven trade tensions and the Brexit deadline and FX traders will need to buckle up.”

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