Global Market Perspective - Q3 2018

Political risk returned to markets in the second quarter, with President Trump ramping up trade tensions by imposing US tariffs on steel and aluminium and implementing tariffs on $34 billion of imports from China.

Those affected have responded with a series of tariffs on US goods and the president has threatened to escalate tariffs to autos and another $200 billion of imports from China.

Markets have seen this as disruptive to trade and growth with the result that bond yields have eased lower and the US dollar has strengthened. Emerging markets have been particularly hard hit. We disentangle the fall out from these developments in the strategy note and consider the risks of escalation. We also take a more general look at the effect of a stronger dollar on global growth and the emerging markets in the research note.

In terms of asset allocation, we have moved in a more cautious direction by reducing our exposure to equities from overweight to neutral by cutting our holdings in Japan and the emerging markets. Although global growth continues, higher US interest rates and political risk point to more volatility ahead.

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Global Market Perspective - Q3 2018 26 pages | 693 kb