The lack of clear direction in risk assets reflects several factors. Firstly, the global economy is both a negative and a positive. On the negative side – while the major economies are growing, growth rates are moderate, downside risks elevated and the lack of upward momentum means constrained corporate revenues against a background of rising wage costs. The positive, is that this means inflation remains moderate and an excuse for central banks to err on the side of either more stimulus or tentative tightening in the case of the US. This has been the lifeblood for investors for the last few years. Secondly, valuations (generally) are not compelling, despite pockets of value. Thirdly, the influence of zero/negative rates in supporting asset prices generally has been pervasive. However, as the US Fed inch closer to another rate hike, this important layer of support is incrementally being withdrawn. There is also growing debate in Europe and Japan that recent measures (including negative interest rates) have been counterproductive. We discuss this in “Not a time to ‘set and forget’” (VIEW LINK)


Please sign in to comment on this wire.