There's not much good news around to welcome Santa!

Nearly every economist got this week's GDP figures for the September quarter wrong (+0.3% and 2.8% YoY). Now there's speculation that the R word will be back on the agenda. And if not a Recession, then possibly a slowdown, and rate cuts down the track from the RBA if the December quarter figures are equally disappointing. That's a big turnaround in expectations, even if most experts weren't expecting an upward movement in rates any time soon.

Anecdotally, based on going to a department store earlier this week, and worse still, a shopping mall, (which Hedge Clippings generally tries to avoid like the plague unless absolutely necessary) there doesn't seem to be much Christmas cheer running through retailers' cash registers. Maybe consumers are all shopping online, maybe they're waiting until the last moment (like yours truly), but quite possibly they're just pulling their heads in.

Why?  Because as noted above, there's not much good news around unless you're an extreme, and possibly unrealistic optimist!

• As recently as May this year one of the (so called) expert real estate commentators downgraded their 2018 housing price forecast on a weighted capital city basis to between -2% to +2%. Fast forward just 6 months and with the property market down 10% they're realising a further 10% fall is not out of the question as banks pull their heads (sorry, lending criteria) in and faith in the financial markets has been tested by the exposure of the Hayne Royal Commission on the front pages and TV nightly news.

• Irrespective of one's political preferences there's a general lack of confidence in our glorious pollies, and an election, and a change in government is just around the corner.

• Globally the Trump / China spat is far from resolved, creating uncertainty in US markets. Brexit is uncertainty personified, and even the German economy - not long ago the envy of the world - is suffering.

• In the US, 10 year bond yields, having recently threatened to rise above 3.5% and spoil the equity market's party, are now threatening to fall below 3% based on concerns about a US slowdown in 2019.  The yield curve is close to inverting as 10 and 2 year bond rates are dangerously close to each other.

• Every US recession for more than half a century has been preceded by an inversion of the curve, although to be accurate not every inversion has been succeeded by a recession.

Could the unthinkable - an end to Australia's record growth run - happen? Hopefully not, but there are enough signs, and opinions pointing in that direction, that it would be unwise to rule it out completely.

Major Themes for 2018

In years to come, when looking back, (hindsight being a wonderful thing) there are going to be a number of dominant themes which affected markets in 2018.  One of those, namely the threat of impending increases in interest rates in the US, was clearly evident this week as Federal Reserve Chair Jerome Powell hosed down the market's hawkish expectations, resulting in a massive "relief rally" as equity investors, who had been nervous all year, pinned their ears back and pushed the market sharply higher.

Unfortunately one of the other big themes (or concerns) hanging over the market, namely the impending US/China tariff war, overcame their optimism ahead of the G20 meeting in Argentina. Welcome to Donald Diplomacy, Huff, Puff and Threat. Every war has an armistice, and in this case it remains to be seen if the initial skirmishes and threats prevent the war actually starting, or whether it will escalate come January 2019.

However, if the messages out of the G20 are positive, particularly if added to the Fed's more benign outlook, then expect a bumper Christmas rally to end the year.

In Australia, one of the great themes of the year has been the revelations from the HRC, with the final round of public hearings concluding today ahead of Commissioner Hayne's final report due in February. With the exception of Macquarie's Nicholas Moore, none of the bank CEO's or Chairmen did their (or their organisations') reputations any favours. In particular Ken Henry shone for all the wrong reasons when he presumably decided he'd had enough of copping flak, and was going to take a different approach. We'd rate his performance as a 9/10 for effort, and a 1/10 for success. 

The other theme for 2018 was falling residential property values. Combining the problems of the banking and financial services sector with an over-indebted consumer, an oversupplied market well overdue for a correction, and brakes put in Chinese buyers' access to credit, resulted in the inevitable correction which will no doubt continue for at least a year, and possibly more.

Finally, politics will go down (unfortunately) as a theme to remember for 2018. Be it The Donald, Brexit, or the revolving door at the Lodge, it is not encouraging optimism.

As we said at the beginning, hindsight's a wonderful thing. Predicting the future is fraught with difficulty, so we'll leave that to another day!