Economic & Strategy Viewpoint

February 2016

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Senior Emerging Markets Economist

Keith Wade

Keith Wade

Chief Economist & Strategist

Global update: Time to hit the panic button? (page 2)

Falling oil prices and a further devaluation of the Chinese yuan (CNY) have contributed to a poor start for risk assets.

There are now fears that the US will drop into recession. Despite being relatively cautious on global growth, we believe these concerns are overdone, although we recognise that the biggest “known unknown” is whether the CNY will devalue significantly further.

The move in the CNY and the decision by the Bank of Japan to cut rates into negative territory in January highlights the tail risk of a currency war in 2016.

UK: Sterling slides as political risk comes into focus (page 7)

The British pound has been the worst performing G10 currency since the start of November.

In fact, the depreciation against the US dollar over the past two months was the worst since the global financial crisis in 2008. The direction of travel for sterling is not a surprise given the UK’s macro imbalances, but the scale of the drop has been larger than expected.

The fall in interest rate expectations appear to justify the fall in sterling. These are likely to be driven by falling oil prices, and the likely impact on UK inflation.

However, Brexit risk appears to be rising in prominence just as opinion polls tighten. While there may be traces of Brexit-related selling of sterling, we think there is scope for further depreciation if risks were to rise.

Emerging markets: China concerns (page 12)

Volatile markets in China have prompted an outsize global response. Equity gyrations on the mainland have little to no economic bearing.

Currency weakness is a bigger threat to the world, but a big devaluation still seems distant.


Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Contact Schroders Wealth Management

To discuss your wealth management requirements, or to find out more about our services and how we can help you, please contact:

Marc Brodard

Marc Brodard

Head of Private Clients - Switzerland