We expect monetary policy in the US to be tightened by more than investors seem to be anticipating, but agree that in other major developed economies it is likely to remain very loose. With this in mind, we forecast that the dollar will resume its rise against other “major” currencies and that bond yields will climb sharply in the US but not in Europe and Japan, where we also think that equities will outperform. In many emerging economies, we expect bond yields to rise and currencies to fall in response to tighter Fed policy and concerns about Trump’s presidency. We envisage emerging market equities holding up better, partly due to their relatively low valuations.
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