Jittery equity analysts cut forecasts for next year’s corporate earnings; Tighter financial conditions may prompt more central bank caution; Safe-haven flows intensify in early 2019 amid concerns about the credit cycle; Heightened volatility — notably in equity markets – dampens risk appetite 

Slump in cyclical sectors highlights concerns about global growth, impact of quantitative tightening; Market selloff has prompted a sharp correction in equity valuations—but they still don’t look cheap; Signs of rotation to emerging markets; This will be the last Weekly Insight of 2018—see you in the New Year!

In this forerunner to deeper IIF analysis that will follow in 2019, we look at some potential scenarios where innovative disruption could have an asymmetric effect on banks’ balance sheets.

Lesson #1: Don’t engineer an outsize credit boom into a global tightening cycle. Lesson #2: Current account-based estimates of FX fair value are really important. Lesson #3: After a decade of G-3 monetary easing, EM has a positioning overhang. Lesson #4: Imposing a tariff on China is a negative shock that weakens the RMB. Lesson #5: Don’t get hung up on stories the Fed is shifting hawkish. It isn’t.

In our last edition of Sticky Notes in 2018, we look at President Xi's reform anniversary speech, Venezuela's future, NAFTA termination, oil markets, and a potential U.S. government shutdown.

We have introduced a new measure of real money positioning in EM, which extends the IIF’s well-known work on capital flows to positioning. Our positioning data are calibrated to match stock positions in the BoP, so by construction are representative of the full positioning picture.

Growth has rebounded, driven by higher copper prices and robust investment. Ongoing reforms will help reduce the fiscal deficit and stabilize public debt. High external corporate debt poses challenges, but several factors mitigate risks.