1 to 7 January: Back with a Bang

Whilst 2017 was a year in which economic conditions were favourable for just about all asset classes, 2018 has kicked off in more traditional “risk-on” style. Last week equities rallied aggressively (with more cyclical and emerging markets out-performing) but government bonds were mostly lower. If this trend continues, at some point there will be a feedback loop in which higher borrowing costs prompt a re-evaluation of equity prices and economic forecasts. Given the strength of global growth, it is probably too early to worry about this. Indeed, the real “canary in the coalmine” will be higher inflation. This would force the hand of central banks and risk a proper bond market tantrum.

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