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The Road Ahead for Financial Markets

17 July 2017

Road Ahead

With the outcome of the UK General Election still resounding in our ears, our Chief Investment Officer, Don Smith, sets out his views on the positioning of global markets.

Global Equity Markets - Strong And Stable

Robust economic growth, low inflation and a sense that equity market strength is tacitly supported by central banks all combine to generate an environment of ongoing global equity market strength.

UK – Not So Strong And Stable

The June election has left the Government’s position precariously balanced. This raises political uncertainties which, in turn (given the importance of Brexit negotiations to the UK’s trade outlook), raises currency risks. The outlook for sterling has weakened although this should be viewed as a positive for the UK’s internationally dominated stock market.

Eurozone - Resurgent

Activity indicators are going from strength to strength. However, political risk never seems far away in the Eurozone and the Italian general election, which has to be held by next spring, is a significant political hurdle for the Eurozone to clear given the high level of euro-related dissatisfaction in Italy. Despite this, the buoyancy of the economy and positive trade position offer considerable support to the Euro.

US – Resolute

US stock markets remain close to all-time highs, supported by a more positive global growth outlook and the radically pro-growth and low tax Republican administration. Improving growth dynamics outside the US (not least driven from Asia) will weigh on the relative value of the dollar. The strength of the economy is allowing the Fed to painlessly ratchet interest rates higher.

China - Moderating

Growth in this economic giant remains strong but appears to be moderating as the authorities step up their efforts to tackle excessive lending. As long as this is accompanied by a sense that a slow, controlled descent is in progress, this need not be negative at all for global financial markets. China will remain the power house behind global growth for many years to come.

Fixed Income - Contained

The upside momentum behind global policy rates remains weak but positive nonetheless. The Fed is leading the way and yields in the US – the global benchmark – are well off their lows. But with global inflation subdued, yields are also likely to remain contained.

Emerging Markets - Attractive

The outlook for emerging markets remains positive. Equity markets are at attractive levels and ongoing positive growth dynamics from China are providing a following wind.

 

Don Smith

Chief Investment Officer 


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