Head of Policy
World economy shrugs off uncertainty…for now
Despite the increase in economic uncertainty, the world economy is strengthening with business surveys signalling an acceleration in growth. Concerns about Brexit and President Trump’s populist policies have been swept aside, prompting talk of a crisis in economic forecasting. Growth forecasts are likely to be upgraded, but we still have doubts about the medium term sustainability of the upswing now that oil prices and inflation are rising again.
Europe: improving momentum and fundamentals
Europe faces significant headwinds in 2017. Inflation is set to rise which will reduce the purchasing power of households, while political uncertainty, both at home and abroad, could weigh on confidence. Fortunately, cyclical indicators suggest growth was stronger than expected at the end of 2016, with the momentum continuing into January. Moreover, the economy’s fundamentals are improving, with employment growth rising and wages starting to recover.
As economic fundamentals have been improving, so too have earnings. Consensus earnings expectations have not been subject to the usual beginning of the year downgrade cycle. This has supported equity markets, along with positive fund flows with investors moving away from bonds as yields increase and prices come under pressure. Sentiment is also supportive for equity markets, although we are conscious that valuations are not cheap. Nevertheless we are maintaining our equity positions, embracing active management, diversification and nimble asset allocation to help steer portfolios through any volatility.
The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.
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