Yogi Berra's quip about "predicting the future" will never be more applicable than in trying to forecast key developments in the year ahead. “Black Swan” surprises, the president’s challenges with impulse control (like his Tweet on withdrawing U.S. forces from Syria, leading to the Mattis ‘retirement’), and the steady populist drumbeat against the “globalized world order,” tell a simple story: 2019 will prove even more tumultuous than 2018.
- With dozens of geopolitical worries and an equal number of geo-economic flash points looming, where's the greatest potential for market-rattling tumult? At least seven areas stand out; here's a condensed list, along with (humble) attempts to predict outcomes:
Geopolitical, i.e., key elections of global interest: Ukraine (March), Indonesia (April), India (April-May), and the European Parliament (May). In order,
- Ukraine: the presidential election is too tempting a target for Vladimir Putin to pass up; a pro-Moscow successor to sitting President Poroshenko isn't in the cards, but neither is a stable Ukraine - the goal, of course, of Putin.
- Indonesia: presidential incumbent Jokowi faces (again) a retired general who is running on economic nationalism; the popular incumbent in the world's largest Muslim democracy should prevail.
- India: the Modi magic is waning as the anticipated business boost from needed economic reforms disappears; what seemed unlikely even six months ago - a Congress party returning to power - is now a worrisome possibility for an Indian PM with close ties to the White House.
- European Parliament: another tempting playground for Vladimir's "active measures" influence campaign. Interest has never been high for these elections; but with "anti-Brussels" fever growing, Vlad will feed the fever to support Euro-skeptic populists from the fringes.
Geo-economic, i.e., state-to-state business dust-ups that can shift markets: U.S.-China tariff clashes (now a "firm deadline" of 1 March to secure a trade deal), UK-EU (a March 29 British crash-out date), and U.S.-Iran (an early May deadline for White House decisions on waivers of energy sanctions). In order,
- China tariffs: it's anyone's guess how this turns out; the worse the market volatility in the spring, the more eager will be the president to declare a "win;" in this case, true systemic change in the PRC's economy will be the casualty.
- Brexit: UK politicians have been given a chance by the European Court of Justice to kick the March deadline "can" down the road; they will seize it.
- Iran Sanctions: Iran's economic belt is tightening by the week; will the president throw Tehran another thin lifeline in May, when waivers expire for China and India's oil purchases? Only if Trump is convinced these countries have further squeezed Iran. But regardless, expect no regime change and no return to the bargaining table in the year ahead.
The first 100 days of the new year look daunting. If there is “good news,” the tea leaves in Korea suggest that Trump and Kim Jong Un remain BFF’s for another year; and “NAFTA 2.0” is likely to squeak through Congress.
- What actually rocks markets, though, is often the totally unexpected -- as every president since Carter (Soviet invasion of Afghanistan) through Obama (Syria's collapse) - has found.
- In the end, it's how the fractured U.S.-China relationship evolves in 2019 that will likely drive the market stability question. Are we "Destined for War," as national security scholar Graham Allison asked in his 2017 book of the same title? Probably not.
- But Allison also concluded that imaginative statecraft will be needed to keep the rising power (China) and the status quo power (the U.S.) from violent confrontation. Are presidents Trump and Xi Jingping "imaginative" leaders? 2019 should suggest the answer.
