Banks brace for more Hayne pain this year
Australia's big banks are prepared for the worst ahead of the financial services royal commission's final report, which is due in a few weeks.
Commissioner Kenneth Hayne will on 1 February hand down his final recommendations from the financial services royal commission.
No one knows what he will recommend but - after seven rounds of hearings, thousands of submissions, 134 witnesses, and a scathing interim report - the big banks are prepared for the worst.
A proposal to break up the big banks could add to the hasty departures, forced refunds, and trimmed executive bonuses seen so far.
Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ Bank (ASX: ANZ) will all be at risk of a second strike on executive pay and a board spill. At the same time, the fallout from previous misconduct will continue into 2019, with class actions progressing against Commonwealth Bank (ASX: CBA), AMP (ASX: AMP) and others.
Political uncertainty
Bill Shorten's Labor opposition has a comfortable lead heading into 2019, with business leaders already considering the implications of a change in federal government.
Investors are wary of Labor's plan to rein in negative gearing tax breaks and dividend imputation for shares amid a weak market, but a promise to address the gender pay gap and restore penalty rates appears a simple sell.
Prime Minister Scott Morrison, meanwhile, says he will deliver an early budget to allow for a May election, with Treasurer Josh Frydenberg already forecasting a surplus of $4.1 billion in mid-2020 - the first since John Howard was PM.
Bill Shorten's ALP holds a comfortable lead in polls, but investors remain wary
Housing market keeps sliding
A burst housing bubble remains the greatest risk to the nation's $1.3 trillion economy, according to the Organisation for Economic Co-operation and Development, with an already-stagnant property market told to prepare for a hard landing.
House prices and auction activity have fallen gradually since late 2017, with Reserve Bank Assistant Governor Christopher Kent blaming "unnecessary" credit tightening for further threatening activity.
Even a surprising jump in housing finance approvals in October was waved away as a "dead cat bounce", with the downturn likely to continue into the new year.
Economy and interest rates
Gradually sliding unemployment, and slow climbing inflation, means interest rates are at greater risk of lifting than falling in 2019. The Reserve Bank has already cautioned that cutting rates from an already-historic low of 1.5 per cent will only further fuel a housing debt binge.
Some analysts argue a cut could jump-start a stagnant property market, but more say subdued third-quarter growth has pushed back any rate hike to late 2020.
Unemployment is expected to continue sliding to 4.75 per cent by 2020, though concerns remain over rates of underemployment and youth unemployment.
Will Australian stocks rally?
The benchmark ASX/200 was in August up five per cent at a decade high of 6,352.24, but reversed gains over a dismal fourth quarter to sit 6.9 per cent down for the year - the bourse's worst performance since 2011.
Analysts forecast market growth to resume in 2019, though the benchmark will have to navigate a slowing global economy, the pressure on the big banks, and likely US-China trade tensions if it is to come out ahead.
Global pressures
Even the smallest fluctuation in Sino-US relations has made waves in the global market, with equities and commodities often at the whim of a single President Trump Tweet.
Late-year tensions between Washington and Beijing fuelled concerns that a new tariff deal on $US200 billion of Chinese imports will not be reached by the March 1 deadline, though a temporary truce in December proved a sugar hit for global stocks.
Volatility has resumed as detail proves evasive, while the arrest of the chief financial officer of Chinese smartphone maker Huawei for extradition to the US has not helped either. Expect further fireworks as 2019 gets under way.