The global economy remains on track this year for its highest GDP growth rate since 2011. Reflecting the cyclical improvement in economic growth, many central banks have become more hawkish recently, getting ready to either wind back their easing or start raising interest rates. The US is furthest through the monetary policy normalisation process. While the outlook there has become less certain following a number of lower than expected inflation results, we expect the Fed to continue on with gradual withdrawal of monetary stimulus.
Improving economic growth around the world will generally support equities and challenge bonds. That’s because this growth is more ‘traditional’ in nature, arising from better employment and demand, and thus allowing prices (and potentially profits) to rise. However, it is important not to chase well-developed market rallies, even when immediate risks are not apparent.
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