2017 Mid Year Outlook | Equities | Bonds | Currencies - Daily Update | Videos
2017 Mid Year Outlook: Cautious Optimism amid Steady Growth
By Citi Wealth Management, Asia Pacific & EMEA |
Equity and bond markets have rallied this year. Can they rise further? Citi strategists highlight the potential opportunities and risks in the equity, bond and currency markets in the second half of 2017.
Citi analysts remain optimistic and still expect US tax reforms to be passed over the next 12 months. However, political developments could distract the US administration in the near term, resulting in a period of volatility for the US dollar (USD).
Different commodities have experienced mixed fortunes since the start of the year. Oil suffered sharp declines as inventories climbed earlier in the year while concerns over China’s growth triggered a correction in bulk metals. On the other hand, gold rallied on the back of heightened political uncertainties. Some of these movements are expected to reverse in the second half of the year. Citi analysts see oil prices heading higher as the output cuts since January start to tighten supply. In contrast, the upside for gold seems limited.
Even after the French Presidential election, political uncertainties and geopolitical risks remain high. History suggests that geopolitical events can have a longer lasting negative impact on financial markets if the event directly implicates the US in a significant manner and leads to a re-assessment of the role of the US in the world. Market volatility can also spike if oil prices rise rapidly or destabilising geopolitical events take place against a backdrop of already weak global growth and there are no offsetting policy actions.
After the US presidential election in November, investors had expected bond yields to trend higher on stronger growth and inflation pressures. In reality, US 10-year Treasury bond yields actually edged lower year to date as of end May. With short term interest rates expected to rise only gradually in the US over the next 6-12 months, Citi analysts see opportunities in selected bond sectors.
After raising rates only once in 2015 and 2016, the US Federal Reserve (Fed) is expected to pick up speed, with a total of 3 hikes anticipated in 2017. The Fed appears to be an exception however, with most other central banks in the developed and emerging markets expected to remain on hold in 2017. As long as rates do not rise rapidly, corporate bonds and equities can continue to hold up if economic and earnings growth comes through.
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