Market Update - January

18/01/2017

Authors

Kate Rogers
Head of Sustainability, Wealth

Upgrades to global growth

Expectations for global growth in 2017 have been upgraded, led by the US, where fiscal loosening is anticipated to provide a boost this year and next and also a more optimistic view on the UK, where the Brexit effect has been smaller than originally expected. Inflationary pressure is rising globally, with the UK particularly exposed to increasing inflation through sterling weakness. Despite this, we expect interest rates to remain on hold in the UK, due to the uncertainty of negotiating an exit from the EU. In contrast, we predict a continued upward trajectory for US interest rates.

Policies and politics

It is a strange environment when a 140 character tweet can determine the short-term direction of equity markets. The decisions and progress of the Trump administration will be critical for markets this year. We are expecting fiscal packages to generate a boost to US GDP, but assume a scaling back of the plans currently articulated by the president elect, as Congress attempts to create deficit neutral tax reform. Politics also continue to loom large in Europe. Notwithstanding the Brexit negotiations, general elections in the Netherlands, France and Germany all feature this year, and we may also see a vote in Italy. Our outlook for the European economy is one of steady growth, but this forecast does not incorporate any major electoral upsets.

Investment implications

We expect the impact of central bank policy to diminish over the coming years, with fiscal stimulus favoured to support growth. The ‘reflation’ trade has taken equity markets higher, and bond markets lower. In this environment we have seen market rotation away from bond-proxies, where valuations of ‘quality’ stocks had become extended. Conversely ‘value’ approaches have benefitted, as investors refocus on fundamentals. Our charity portfolios tend to be biased towards this value style, and we retain our underweight to bond markets. We believe that diversification remains attractive, as political risk and sentiment oscillations are likely to cause volatility and will continue actively managing our client portfolios to benefit from the opportunities that any such market fluctuations may present.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

Authors

Kate Rogers
Head of Sustainability, Wealth

Topics

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.