Asset allocation – November 2017
SUMMARY : Upbeat market in October, led by Japanese equities / ECB asset purchase ‘recalibration’: still accommodative / EM: renewed idiosyncratic risks?
Equities’ upward momentum continued throughout October. Overall, this was fuelled by improved macroeconomic indicators and improving investor sentiment.
Japan led global equity markets, rising by 8.1% in local currency terms and by slightly less in US dollar terms due to the strengthening of the greenback. This resulted from Prime Minister Abe’s snap election victory, which should allow accommodative monetary policies to be continued.
Similarly, European risk assets were helped by Mario Draghi’s dovish tone as the ECB President announced the well-telegraphed tapering of the central bank’s asset purchase programme, carefully referred to as ‘recalibration’.
Asset Allocation November 2017
US and eurozone PMIs underscore growth prospects; UK odd one out
Converging Australian and US yields spark profit-taking
…but clouds have appeared over US small caps
US inflation on a rising trend
Our outlook for US inflation and growth has brightened considerably since the start of 2018, so we have lifted our targets for both US Treasury yields and TIPS-based breakeven inflation rates. Here, we review the factors we see as contributing to the rise in US inflation and we look at the potential monetary policy response from the Federal Reserve (Fed).