Global equities are currently enjoying their longest winning streak since mid-2014 as the 'Trump rally' has kept momentum. Sovereign bonds also stabilised after a poor start to the year and corporate bonds have found similar support recently.
Economic indicators began to show an improving global picture during the second half of 2016 and the better news has been maintained this year, underpinning the rally that we have seen in risk assets; the remarkable bounce in commodity prices seen over the last few months is testament to this improved economic outlook. February data points for each of the major economies again showed that economic activity is picking up and has now reached reasonable, but certainly not extraordinary, levels. I believe that this cyclical upswing has further to run and as yet have seen little evidence of cracks appearing in this recovery.
From a longer term perspective I remain wary of rising inflation and the ability of central bankers to pull back from their current extreme levels of monetary stimulus without upsetting markets and the economy in some way. QE and zero interest rates for such a long period were historic firsts and how this unwinds is a big unknown. In the near term, late-March will be a busy month for macro events, with Dutch elections, the (promised) triggering of Article 50 and Fed and ECB meetings all ahead. Given how strong markets have been this year, I don’t think we should be complacent or surprised if any such near-term event should lead to a correction in risk assets. Nonetheless, there continues to be a positive underlying economy supporting markets at present.
