Our view is that monetary policy will be tightened by more than investors assume in the US, but typically be at least as loose as they envisage elsewhere. We therefore expect to see a significant rise in the yields of long-term US Treasuries, but only small increases, or even further falls, in the yields of many other high-grade government bonds. We also think that a starker-than-expected contrast in monetary policies will drive the dollar back up, taking some wind out of the sails of the US stock market. But as the news on China continues to improve, we expect equities elsewhere, including in emerging markets, to fare better and most commodity prices to rise further in time.
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