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16 August 2017

Earnings momentum remains stable for now.

Economic surprise driving EUR v USD but no FX hit to eurozone profits estimates

It may be the perfect environment for passive strategies as the lack of catalysts during 2017 has led to a continuation of the low volatility yet highly-valued equity market regime. In particular, it has been a robust year for corporate profitability. 2017 earnings growth forecasts remain pinned around 10%. Even while the medium-term outlook for markets looks challenging on valuation grounds as extraordinary monetary stimulus is unwound, those looking for a significant correction in the short-term should beware as corporate earnings trends remain robust at present.

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17 July 2017

Fed policy: Don’t forget your flip-flops.

US inflation and growth numbers undershoot expectations

It is just a few weeks since the US Fed raised interest rates and central bankers globally opined on a removal of monetary accommodation (albeit slowly) as the global recovery gathered momentum. Unfortunately, some inconvenient facts are already casting their shadow. The Atlanta Fed US GDP nowcast for Q2 17 has fallen to 2.4% from 4% at the start of June, with disappointing US retail sales contributing to the downgrade. Furthermore, core CPI has undershot expectations with the year-on-year figure now at 1.7% for June, compared to 2.3% at the start of the year. Fortunately for central banks, the holiday season has started and the focus may be elsewhere. However, some re-calibration of the trajectory of US monetary policy may already be necessary.

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16 March 2017

Just what the Fed wanted.

A rate increase and a rising market – but was it really dovish?

Having primed markets to fully expect a US rate increase, the FOMC followed through on the 15th March. If the aim was to deliver a rate increase without abruptly causing tighter financial conditions (code for declining equity and credit markets), then it was mission accomplished. Following the FOMC announcement the dollar eased against other currencies, bond yields fell and equity markets gained. However, despite comforting language within the statement we detected a more strategic, rather than data dependent, direction for US interest rates in the press conference Q&A.

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14 November 2016

Forward guidance - Trump style.

These are strange times in global markets. Trump’s election, previously feared as a universal negative for global markets, has been accompanied by remarkable strength in risk assets. We highlighted investor positioning as a factor last week but now question if there is there more to this rally? Could Trump’s fiscal policies represent a “whatever it takes” moment?

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16 August 2016

Earnings forecasts: Reassuringly stable?.

Recent trends in consensus earnings forecasts highlight analysts’ confidence in corporate performance for 2016, even as GDP forecasts continue to decline. For now, it appears that the global phenomenon of steadily declining earnings forecasts, a factor behind the relatively weak 2015 equity market performance, has ebbed. There also remains no observable impact on aggregate UK earnings forecasts from Brexit to date, although as we have previously noted for the UK, FX benefits for exporters have offset modest downgrades to sectors focused on the domestic economy.

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*Multiple Sectors
30/05/2019
Equity strategy and market outlook - May 2019

In this month’s strategy piece, Alastair notes that the much-anticipated resolution to the US/China trade dispute has failed to materialise. Furthermore, the likelihood of any resolution in the near term appears modest at best. His earlier more positive views on equities for 2019 were contingent on a US/China trade resolution by mid-year and his outlook has therefore become more cautious. A downward turn in survey data and consensus earnings forecasts has been re-established and ebbing global earnings momentum during the past four weeks consistent with softer PMI indices and slowing trade data. Short- and long-term bond yields have fallen in recent weeks, reflecting market expectations of a slowdown. A steady build-up of debt in the corporate sector of China and the US will become a greater issue if the economy slows. Therefore, he believes investors should now focus on balance sheet quality in equity investments at this point in the cycle. He moves to a cautious view on global equities from neutral. Given the still significant rally since the year-end, there is time to reposition portfolios and he believes investors should focus on specific companies with lower than average exposure to cyclical factors and trade headwinds, given the cautious outlook.

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