12 to 18 March: Looking for answers

After January’s euphoric top, investors appear to have lost conviction. Initially, this change of sentiment was prompted by the interconnected threesome of higher oil prices, US wage growth and bond yields, which collectively threatened to end the previous 18 months of “Goldilocks” conditions via the potential for tighter monetary policy. More recently, Trump’s anti-trade agenda, Russia’s alleged poisoning of a former spy in the UK and Italy’s messy election result have added a political flavour to this uncertainty. Moreover, a number of weaker data prints (particularly in Europe) have confused the growth picture.

All this notwithstanding, we continue to hold a positive view on equities and growth (particularly outside the US). Whilst the FED is all by certain to raise rates again this week, other central banks are unlikely to follow. Indeed, in emerging countries such as Brazil, Russia and South Africa we may see easier policy. In addition, the moderation in developed market economic data is normal after the unsustainable surge in Q4 2017, but releases are still consistent with some of the best growth since the financial crisis. Therefore, we expect positive momentum to return, but amid higher volatility; conditions are still constructive but no longer perfect. As it relates to the US, this month’s average hourly earnings release offered a temporary reprieve from higher bond yields. However, we believe price pressures are slowly building and there is an inevitability of higher yields, with 3% yield on the 10-year a potential flashpoint for markets.

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