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Brevan Howard, which returned to form in 2018 with a 12.3% flagship gain, is bracing for an unsettled macro picture in the months ahead.

“The outlook going forward is considerably more uncertain given the tightening in financial conditions in Q4, weaker global growth, and policy-related headwinds from trade disputes,” its traders told investors in its listed vehicle.

“Looking forward, the crosscurrents in the outlook will probably persist in 2019, making for an unsettled macro environment.”

The comments reflect continued uncertainty over the direction of markets more than a month into 2019. “Depending what perspective you decide to take, things can look enormously bleak or relatively promising,” said Man Group’s Pierre-Henri Flamand in a recent note.

“Our meetings at the beginning of 2019 have been characterised by an almost comical lack of agreement,” he said. “Once we tallied up the various outlooks from our several weeks of meetings, we ended up with a precise split: a third bullish, a third neutral, a third bearish.”

The lack of consensus highlighted the “febrile state” of the overall mindset of market participants, he added.

In its regional economic forecasts, Brevan Howard highlighted several factors which could influence the macro picture in 2019:

  • US: The Federal Reserve has “calmed” markets with its promises of patience over raising rates, Brevan said. “Meanwhile, dysfunction in Washington seemed poised to worsen under divided government.”
  • UK: Uncertainty caused by Brexit has caused economic activity to “moderate” and the market to “price out” expectations of rate rises. “A full rate hike is now only priced in by mid-2020.”
  • Eurozone: Inflation remains well short of target and also of the central bank’s “bullish” forecast. “The European Central Bank’s disappointment on inflation, particularly core, is likely to persist and become and a prominent theme as the year progresses, increasingly suggesting that ending net quantitative easing purchases was a policy mistake by the ECB.”
  • Japan: Inflation could disappoint policymakers. The data shows “no inclination” to move from its current level around 1% to the 2% target.

Numis Securities has rated BH Macro, the listed vehicle investing in Brevan Howard’s flagship, as a “core buy” since the third quarter of last year. “We believe it is an interesting portfolio diversifier at a time of increased volatility in Equity markets,” it said in a recent note.

READ MORE: Macro’s moment? Trends to watch in 2019

Brevan Howard sees “uncertain” macro picture in 2019 on EuroHedge.


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