Investment Desk Bulletin

10 May 2017

Macro Musings

IDB 10 05 17

By Roger Jones

The global growth outlook remains modest but is improving. This week’s IDB, ‘Macro Musings’, looks at the factors effecting the current global macro environment.

First quarter growth in the US suffered from seasonal distortions, however, leading indicators remain healthy and the labour market continues to strengthen. Following the recent Fed meeting, the market implied probability of a June rate hike has shifted to 100%, with one further increase expected later in the year.

There is firm economic momentum building in the Eurozone, with only French GDP growth experiencing a slowdown in Q1. Political risk is dissipating for now, however Italian General Elections, expected next year, will be particularly significant, considering the Five Star Movement’s lead in the polls and the possibility of an EU referendum.

Emerging Markets (EM) will experience a strong rebound from 2016, driven by Chinese reacceleration in Q1 and slow recoveries in Russia and Brazil. Despite longer term concerns on debt and sustainability, the outlook for China is positive, as the economy rebalances.

Given the modest but improving economic outlook, London & Capital’s overall asset allocation moved more pro-growth at the end of last year. Fixed income allocations remain steered towards financial bonds and within equities we have recently launched our Domestic European and Cyclical Acceleration themes.