Economic and Strategy Viewpoint
Economic and Strategy Viewpoint - January 2018
We review what happened in markets and the global economy in 2017, when political risk failed to stifle asset price exuberance. We also highlight our themes for 2018.
Page 3: 2017 review: the dog that did not bark
- We look back at a year full of political noise which ultimately was not enough to suppress ebullient asset prices.
- Emerging markets perhaps suffered more from political risk than their developed counterparts, but still delivered the best returns on aggregate in a strong year for equities.
- Despite the lack of a political crisis, we think 2017 still showed that politics can and does matter. Relief rallies as tail risks failed to materialise provided evidence of this
Page 14: Themes for 2018
- We highlight three themes in 2018. The first is “Goldilocks gives way to reflation” where stronger growth and higher inflation replace the market-friendly combination of low inflation and robust growth seen in 2017. Second, is “The long farewell: the end of QE” where we highlight the forthcoming withdrawal of global liquidity. Third is “The return of political risk” where we draw attention to the US mid-term elections which may return Washington to gridlock.
- All three themes strike a note of caution for equity and credit markets in 2018, but investors may be focused elsewhere so by popular demand we have added our thoughts on bitcoin.
Page 20: Views at a glance
- A short summary of our main macro views and where we see the risks to the world economy.
The full document is available below.