17 February 2017 · 2 min read

Earnings estimates stuck in low gear

Still no sign of Trump bounce in corporate profits outlook

Now, several months after Trump’s election there has been ample time for the corporate sector to re-evaluate the 2017 outlook in respect of improved economic optimism. However, we have found that earnings upgrades have not to date followed positive economic surprises. In the past, short-term market direction has been closely linked to earnings momentum and the current absence of upgrades points to a period of sluggish market performance.

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16 February 2017 · 3 min read

C’est l’économie… French and German bond yields diverge

It’s not the unlikely election of Le Pen, it’s the economy ...

The recent divergence between French and German government bond yields has been widely attributed to a possible victory for the anti-euro Marine Le Pen in the French presidential election. In our view this is not the whole story. The widening gap in terms of borrowing costs also mirrors the increasing economic divergence between France and Germany. Therefore, the increased risk premium for French government debt should be expected to persist, even after the election of a mainstream candidate, adding to pressure on the euro project.

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15 February 2017 · 2 min read

Yellen’s hawkish testimony: Rate increases ahead

The strong performance of asset prices in the post-2008 era remains in our view largely attributable to lower than expected growth rates being offset by much looser than expected monetary policy. However, as expressed recently by Bank of England Governor Mark Carney “..we’re coming to the last seconds of central bankers’ fifteen minutes of fame”. If, as we believe, central banks are in the early stages of stepping back from unconventional monetary policy this is likely to have significant implications for asset prices.

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3 February 2017

Implicit forward guidance on asset prices?

Outside Japan, global inflation measures have over the last 8 months been rising as fast as at any time in the previous 25 years on a headline basis. The US Fed has kept real interest rates much lower for much longer than in previous cycles and the orthodoxy in central bank circles still appears to be that interest rates should stay accommodative in order to avoid the risk of deflation with rates still close to zero. Keeping rates low as inflation and growth accelerates may feel pleasant for now but also runs the risk of Fed Chair Yellen’s “nasty surprise”.

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16 January 2017 · 2 min read

Earnings Revisions: Waiting for upgrades?

Though global equities continue to benefit from significantly increased investor optimism, US and continental European earnings forecasts for 2017 have remained stubbornly static over the last 3 months. However, in the UK 2017 earnings estimates continue to move higher, tracking the decline in sterling and providing a degree of fundamental support for the FTSE100. For US and continental European equity markets, the increasing divergence between 2017 profits forecasts and their respective price performance, when added to the lack of valuation support, puts a question mark over how much further the rally can run.

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9 January 2017

Valuations trump noisy narratives: increased caution on global equities

Price/book valuations point to sub-par equity returns over the next 12m

Judging only by current equity market valuations, global equity investors are significantly more likely than usual to achieve only below average returns over the next 12 months, if prior correlations remain a guide to the future. Average price/book multiples for world equities are once again at peak levels, similar to those prevailing in 2007 and 2000, and this is reinforced by a similar picture for P/E ratios. We believe investors should factor in the possibility that broad equity market exposure may result in weak or negative returns and stock-pickers cannot rely on a tailwind of benign markets over the next 12m.

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