Last week, the trend of more volatile asset prices continued. At first glance, it might appear “bad luck”; that markets are being buffeted by an unusual number of idiosyncratic news items. However, we think this is instead symptomatic of a change in regime as, mostly in the US, later cycle dynamics, which include tightening monetary policy and labour markets, bring an end to 18 months of “Goldilocks” economic data. This more uncertain macro picture, coupled with rich valuations, leaves investors more sensitive to negative headlines.
Notwithstanding the importance of the US to the global economy, we reiterate our more constructive outlook on a number of emerging markets (Latin America, Egypt, South Africa, India), where macro tailwinds remain.
This week we have the March employment report in the US. Consensus expects average hourly earnings to come in at 2.8%. A print above 3% would in our view drive Treasury yields higher.
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