Weekly Impressions

The difference in conduct of monetary policy between the US Federal Reserve and the ECB is striking. Mr Mario Draghi has again highlighted that the ECB remains committed to do whatever it takes to ensure that the path of inflation returns its target of 2%. At the same time, the Fed continues to exhibit a blatant disregard for its own inflation target. The key risk to the global economy is that the Fed commits a policy error by tightening policy at a time when the economy is suffering from an extended disinflation. I recommend that investors overweight the Euro Stoxx index and fund this position by an underweight bet in the S&P500 index. For Australia, the renewed rise in the market's dividend yield suggests that investors are (rightly) becoming more sceptical of the ability for the ASX200 companies to grow dividends at the same rate as in the past five years. (VIEW LINK)