Central bank dynamics will be harder to navigate
Central banks have had a dominant influence on markets for the past decade and we expect this to continue in 2018. Positioning for central bankers’ next moves will become more complex as policies start to diverge globally:
- The US Federal Reserve will likely raise rates further: we anticipate three hikes in 2018, not all of which have been priced in by the markets.
- The European Central Bank will focus on slowing its bond-buying programme while keeping policy rates unchanged.
- The Bank of Japan has begun a “stealth reduction” of its monthly asset purchases, which seems likely to continue.
- The Bank of England recently raised rates for the first time in 10 years, but concerns are rising about growth prospects as well as above-target inflation.
Scale of Central Bank Support Is Set to Diminish in 2018
As central banks gradually reverse their expansionary monetary policies, any associated liquidity shortfall – real or feared – could be disruptive to the markets.
Source: Allianz Global Investors Global Economics & Strategy, Bloomberg, Datastream. Data as at November 2017.