Global Economic Growth Improving
While much of the market's attention over the coming days will be focused on the US Federal Reserve's September 17-18 policy meeting, at which it will decide whether to taper QE3 (and we expect that it will, albeit modestly), the truly important underlying dynamic is that US growth is improving, and lifting the global economy along with it.
This is likely to mean that higher yields are fundamentally justified and will be sustained, with safe-haven (and colossal retail) flows into fixed income being reallocated to equities.
The global growth outlook has clearly improved in the past few months, in line with our constructive view. Overall, high-frequency indicators point to a rebound in growth in the next few quarters, particularly as global PMI new orders are heading higher (the US PMI New Orders index has proven to be a good leading indicator of global GDP growth, for example, and it is soaring).
The recent combination of market moves shows increasing confidence in sustainable economic growth: equities and bond yields are rising in tandem, while stocks of economically-sensitive sectors such as banks are also pushing toward multi-year highs. As such, we maintain our bullish medium-term outlook towards global equity markets.
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This Week's Trivia Question
Last week's question was as follows: According to the Bank for International Settlements (BIS), the Chinese yuan has now entered the ranks of the world's top 10 most traded currencies, in ninth place. The top three are the US dollar, euro, and yen. What are the other six currencies in the top 10 (in any order)? The answer is: pound sterling, Australian dollar, Swiss franc, Canadian dollar, Mexican peso, and New Zealand dollar.
This week's question is as follows: Last week saw the 55th anniversary of the sale of a small fishing village by a Middle Eastern country to an Asian country. What was that territory, and what were the two countries involved? We will give you a clue: this place has for some years been said to be of great strategic interest to China.
We will reveal the answer in next Friday's blog post.