A broad-based synchronized recovery continues to gain traction. Following the strongest year of global growth since 2010 (estimated at 3%) the consensus forecast for the current year looks to be even rosier.
There was a sharp rise in US Treasury yields in January on the back of positive macro news, steady rise in oil prices and speculation that central banks in developed markets will start winding back on stimulus measures.
A broad-based synchronised recovery continues to gain traction. Following the strongest year of global growth since 2010 (estimated at 3%) the consensus forecast for the current year looks to be even rosier.
As widely expected, the US Federal Reserve (Fed) raised interest rates by 25bps in December, its third rate hike this year. It also raised its GDP forecast for 2018.
We see the key investment themes to drive performance in Global Credit in 2018 to be similar to last year. Using the output of our initial market assessment, we have developed our investment themes: Long US High Yield, Long Chinese Tier1 SOEs, Long European Hybrids, Long European Financials, Long Rising Stars.
For 2018 and beyond, we see a story of central bank policy normalization and foresee the global economy growing in a similar fashion to how it did in 2017: low growth coupled with comparatively low inflation data.
We expect the economic backdrop for Asian credits to remain constructive in 2018, but remain cognizant of several risks including rising interest rates, robust supply, unexpected weakness in China, geopolitical developments and cross-asset volatility.
The global recovery is expected to continue, albeit at a more moderate pace. Meanwhile, we see policy normalisation and an acceleration of inflation in Asia. Political action will move to South Asia in the wake of upcoming elections there.
US Treasury (UST) yields declined during the month. The nomination of Jerome Powell as the next US Federal Reserve (Fed) chairman overshadowed stronger US economic data, but was subsequently offset by increased geopolitical risks in the Middle East and a setback to US tax reform.
US Treasuries (USTs) fell in October, as prospects of higher growth and inflation increased after the US Senate approved the Republican-backed budget for 2018.