by Summary:
Weekly View Pictet Wealth Management’s near-term view on the economy and financial markets18 October 2016.Last week saw profit-taking on equity markets. Chinese export data unsettled Asian markets (the MSCI Asia ex-Japan fell 2.4% in local currency), but had no notable effect on developed markets (the S&P500 lost 1% in local currency while the Stoxx 600 edged up 0.1%). Cyclicals did better than defensives.A turnaround in earnings growth forecasts following several disappointing years could favour value and cyclicals at the expense of defensives. We are watching Q3 earnings results closely for confirmation of such a turnaround.Sovereign yield curves steepened across developed markets last week. US 10-year Treasury yields reached 1.8% on Friday, in a belated reaction to rising wage growth. UK 10-year Gilts rose by around 13bp because a weaker sterling will push up inflation. German Bund yields left negative territory owing to ECB tapering talk. But we think that a lack of momentum in economic growth will limit the extent of the rise.Yields on investment-grade corporate bonds rose last week, following government bond yields. High yield bonds fared better due to improvements in the oil sector (for US high yield) and the financial sector (euro high yield). US high yield default rates have dipped to 5.4%, but we think they will rise again (Moody’s baseline is to 6%).
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Weekly ViewWeekly View Pictet Wealth Management’s near-term view on the economy and financial markets18 October 2016.Last week saw profit-taking on equity markets. Chinese export data unsettled Asian markets (the MSCI Asia ex-Japan fell 2.4% in local currency), but had no notable effect on developed markets (the S&P500 lost 1% in local currency while the Stoxx 600 edged up 0.1%). Cyclicals did better than defensives.A turnaround in earnings growth forecasts following several disappointing years could favour value and cyclicals at the expense of defensives. We are watching Q3 earnings results closely for confirmation of such a turnaround.Sovereign yield curves steepened across developed markets last week. US 10-year Treasury yields reached 1.8% on Friday, in a belated reaction to rising wage growth. UK 10-year Gilts rose by around 13bp because a weaker sterling will push up inflation. German Bund yields left negative territory owing to ECB tapering talk. But we think that a lack of momentum in economic growth will limit the extent of the rise.Yields on investment-grade corporate bonds rose last week, following government bond yields. High yield bonds fared better due to improvements in the oil sector (for US high yield) and the financial sector (euro high yield). US high yield default rates have dipped to 5.4%, but we think they will rise again (Moody’s baseline is to 6%).
Topics:
Perspectives Pictet considers the following as important: investment view, market outlook, market view, Weekly View
This could be interesting, too:
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Pictet Wealth Management’s near-term view on the economy and financial markets
18 October 2016.
- Last week saw profit-taking on equity markets. Chinese export data unsettled Asian markets (the MSCI Asia ex-Japan fell 2.4% in local currency), but had no notable effect on developed markets (the S&P500 lost 1% in local currency while the Stoxx 600 edged up 0.1%). Cyclicals did better than defensives.
- A turnaround in earnings growth forecasts following several disappointing years could favour value and cyclicals at the expense of defensives. We are watching Q3 earnings results closely for confirmation of such a turnaround.
- Sovereign yield curves steepened across developed markets last week. US 10-year Treasury yields reached 1.8% on Friday, in a belated reaction to rising wage growth. UK 10-year Gilts rose by around 13bp because a weaker sterling will push up inflation. German Bund yields left negative territory owing to ECB tapering talk. But we think that a lack of momentum in economic growth will limit the extent of the rise.
- Yields on investment-grade corporate bonds rose last week, following government bond yields. High yield bonds fared better due to improvements in the oil sector (for US high yield) and the financial sector (euro high yield). US high yield default rates have dipped to 5.4%, but we think they will rise again (Moody’s baseline is to 6%).
- A fall in the yen and sterling did not prevent Japanese and UK equity indices from declining last week—possibly an early indicator of a de-linkage between currency softness and positive equity performance.
- The recent flash crash in sterling is likely to be followed by more turbulence on UK markets and UK gilt yields could continue to rise. Meanwhile, the decoupling between sterling and the FTSE100, which both weakened, might be a hint that the FTSE will not benefit as might have been expected from sterling’s slide.