After initial signs of slowing growth at the start of the year, recent economic data have been solid. Growth is broadening globally and inflation is muted. Our overall expectation is that global growth (GDP) comes in around 3.5% this year and next.
Although economic growth is improving, inflation is muted in most developed and emerging economies. U.S. core inflation, which strips out volatile food and energy, has come down from its first quarter peak and now stands at 1.7% year over year.
Equity markets continue to flirt with all-time highs due to stronger corporate earnings, improved sentiment and encouraging economic data. We expect that stronger earnings and revenue growth will play a critical role in pushing equity markets higher from today's levels.
A pickup in global growth means central banks beginning to unwind their extremely accommodative monetary policies. The Federal Reserve is expected to slowly normalize short-term interest rates and begin to outline a plan to unwind its balance sheet. Both the European Central Bank and the Bank of Japan have grown their balance sheets significantly to fight deflationary forces, and indicated they will soon reduce stimulus.
We remain positive on market fundamentals, see opportunities across asset classes and believe that the long bull market has further room to run. That said, we don't assume that the strong returns seen in the first half of 2017 will necessarily continue.
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