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  • It's been a bumpy start to the new year.

  • On one of the first trading days of 2019, Apple issued an unusual profit warning.

  • And that sent the iPhone maker's shares sliding almost 10% in one day, and the rest of the markets followed.

  • In the US, in Europe, in Asia, equities slid.

  • And they weren't the only securities that reacted.

  • We had turmoil in currencies, with a flash crash driving up the value of the yen.

  • Equity markets had been sagging for a couple of months.

  • That was a reflection of a loss of momentum in the global economy since about the summer.

  • Both in Europe and in China, growth had been slowing quite markedly in the autumn.

  • The exception was the US, where growth has remained strong on the back of a tax cut enacted one year ago.

  • But maybe the Apple profit warning marks a change thing.

  • That was on the back of poor iPhone sales in China, which in turn may reflect increased worries about the trade war between the world's two largest economies.

  • So what do investors expect going forward?

  • Well, they do seem to think that policymakers will start to get more worried, too.

  • Markets bounced when they heard Beijing announce stimulus to bank lending to boost growth.

  • And in just a month, expectations of what the Federal Reserve will do have changed dramatically.

  • At the start of December, markets tended to expect another one or two interest rate hikes in 2019.

  • That has now changed.

  • Nobody expects hikes and the majority of the market now seems to think the likelihood is for a cut.

  • And in the US, investors following the Federal Reserve have dramatically changed their expectations for what will happen in 2019.

  • Just a month ago, they expected further tightening.

  • That has changed.

  • If you look at this chart, the light blue line indicates the probability that markets estimate for another rate increase in 2019.

  • That was 40% as late as early December, a month ago.

  • That has fallen to almost zero.

  • In contrast, the purple line, the probability of no change to rates, and the dark blue line of a cut in rates, have both gone up.

  • So that means according to markets, the overwhelming likelihood is now that the Federal Reserve will stay the course or even loosen in 2019.

  • So to sum up, a turbulent start to the year in markets, who now expect policymakers to turn from a more hawkish to a more dovish stance in 2019.

  • We'll soon find out if they're right.

It's been a bumpy start to the new year.

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