Most influential themes for 2017:
- Fiscal (government budget) stimulus anticipated to take over from monetary (central bank) stimulus in reflating economies.
- Interest rates rising in step with inflation expectations in the US, anticipating higher fiscal stimulus.
- Market volatility of equity indices are low. This low volatility is not pricing in higher geopolitical and economic uncertainty.
Equity markets in Australia and around the world are expected to see shorter term upward momentum, accompanied by some periods of volatility throughout the year. This is expected to be driven by the US and other developed markets rather than emerging markets.
Fixed income government yields are likely to continue rising, particularly in longer maturity bonds led by US 10 year Treasury Bonds.
Fixed income credit should continue to experience positive support despite already being on the expensive side.
Cash rates are likely to remain low with a slight chance of an RBA cut this year, while longer maturity Australian government bond rates will tend to follow US Treasuries closely.
Real Estate markets are late cycle, while income yields and capitalisation rates for valuations are at the lower, expensive end.
Currency markets will be driven by relative expected economic performance and interest rate differentials, with the US dollar having the most impetus to drive higher.
Tactical recommendations (3–12 months)
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