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Monthly Investment Strategy Highlights, February 2017

Asset allocation Improved earnings growth should support attractive returns on developed-market equities. We still expect Treasury yields to rise this year. The 35-year fall in long-term interest rates, during which government bonds provided both strong returns and protection, has probably ended. The protection that government bonds provide for portfolios is therefore set to come at […]

Solid U.S. retail sales follow Fed’s upbeat economic assessment

Core retail sales in the US rose by a solid 0.4% m-o-m in January, above consensus expectations. Moreover, December’s figure was revised up. The result was that between Q4 and January, core retail sales grew by a robust 4.2% annualised. We forecast that consumer spending will grow by around 2.2% q-o-q annualised in Q1, after […]

U.S.-China: Trump’s new approach risks a dangerous confrontation

The relationship between the US and China is of vital importance for the world both from an economic and a geopolitical perspective. Competition between the two powers could be set to come to a head under Donald Trump’s presidency. First, the trade relationship with China is a central issue in the Trump administration’s apparent intention […]

Systemic risks remain low ahead of euro area elections

There are good reasons for investors to worry about political risks in Europe. The most legitimate concerns, in our view, come from the timing of elections this year in the largest euro area countries. They are coming against the backdrop of a broad shift towards protectionism, and at a time when ECB support is being […]

Japan: an export-led recovery is underway

The first preliminary reading of Japan’s real GDP growth for Q4 2016 came in at 1% q-o-q annualised, roughly in line with the consensus forecast of 1.1% but below the 1.3% growth in Q3. The growth in Q4 almost all came from external demand (+1.0%), while the contribution from domestic demand was virtually 0%. Japanese […]

Currency opportunities emerge Down Under

At their February monetary meeting, both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) kept their official cash rates unchanged at 1.50% and 1.75% respectively. However, given our view that New Zealand’s economic fundamentals are better than Australia’s, the temporary weakness of the New Zealand dollar that stemmed from […]

The potential impact of a Trump fiscal stimulus

Our core scenario for the US is for real GDP growth of 2% in 2017 and 2.3% in 2018. This assumes that fiscal policy will be only modestly stimulative. However, with the election of Donald Trump as US president, the possibility of a radical change in public policy has increased markedly—possibilities, which enter into our […]

The unleashing of animal spirits

Donald Trump’s presidential win has unleashed animal spirits in the US that are likely to continue to drive equities forward in 2017. So argues Frank Bigler, head of equity investment research at Pictet Wealth Management, in the latest special edition of Perspectives. There are undoubtedly risks, but for the moment, “the overall direction of the market […]

Wage growth eases in the U.S. despite strong job creation

Non-farm payroll employment in the US rose by 227,000 month on month in December, above consensus expectations (180,000). The unemployment rate rose slightly further, to 4.8% in December while the broader U6 unemployment rate rebounded to 9.4%. Overall, however, the underlying picture remains one of ongoing improvement in US labour market conditions. As we highlighted in […]

US dollar looks well supported this year

Our latest forecasts for individual currencies in 2017 can be summarised as follows: US dollar. The USD is likely to remain strong on the back of an improving US growth and inflation outlook as well as continued monetary policy divergence. Our base case scenario is for a Trump administration that puts the emphasis on growth […]

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