October 2017

The Janus Henderson Global Snapshot explores the themes driving markets, the trends to watch, market returns and metrics, and the Multi-Asset Team’s outlook for regions and sectors at quarter end.


Central banks winding down policy support

Image_The USA flag
Image_The Chinese flag
Image_The Japanese flag
Image_The European Union flag
Image_The Union Jack Flag
Image_A selection of Emerging Markets flags

Market drivers:


Inflation undershoot
The Federal Reserve’s preferred core inflation measure eased further but policymakers signalled largely unchanged rate-hiking plans. A significant portion of the recent decline has been due to “one-off” factors, such as a large fall in wireless phone charges.


Even keel
Growth held up despite less expansionary monetary and fiscal policies and anti-pollution measures. Business and consumer confidence rose further, the latter to a 21-year high. House price inflation cooled but remained positive.


Record profits
Corporate profits rose to another record share of GDP as a weaker yen lifted sales and labour cost pressures remained subdued. Stronger finances were reflected in solid employment expansion and a pick up in business investment.


Taper torpor
Despite strong growth and a rise in core inflation, the European Central Bank delayed an announcement on slowing securities purchases while confirming that policy rates will remain at current negative levels “well past” the end of the buying programme.


MPC surprise
Sterling rallied as Cabinet agreement to seek a Brexit transition eased market worries about a 2019 cliff edge and the Monetary Policy Committee signalled a likely interest rate hike in response to stronger-than-expected inflation and labour market data.

Emerging markets

Indian slowdown
Indian GDP growth fell further in the second quarter to its weakest since 2014. The slowdown since early 2016 reflects the unwinding of an earlier boost from lower energy costs coupled with negative shocks from demonetisation* and tax reform.

Trends to watch:


Falling unemployment
Money trends and prospective fiscal easing suggest solid economic prospects. The unemployment rate has stabilised since early 2017 but is below the Federal Reserve’s estimate of the stable-inflation rate and could fall further, increasing pressure for interest rate hikes.


Monetary resilience
Narrow money** growth fell in late 2016 / early 2017 but has stabilised recently at a level consistent with respectable economic expansion. October’s Party Congress will assign key leadership roles and set policy priorities for the next five years.


Rising inflation
Consumer price inflation is at a three-year high. Eroding economic slack and a soft yen suggest a further increase, which could bring forward expectations of a lifting of the Bank of Japan’s zero yield target.


Fragile politics
Hopes of a new deal to strengthen eurozone burden-sharing are fading. French President Macron has lost support, German Chancellor Merkel is constrained by coalition partners and Italian elections due by spring 2018 could boost eurosceptic parties.


Rising labour costs
Average employee earnings growth remains subdued but total compensation per worker – including pension costs and self-employed income – is rising significantly faster. With productivity still weak, labour costs concerns may keep the Monetary Policy Committee on a tightening tack.

Emerging markets

Relative money trends
Real (i.e. inflation-adjusted) narrow money** growth has fallen in the E7*** large emerging economies while rising in the G7*** developed economies. The E7 / G7 gap has turned negative, suggesting less favourable relative prospects for emerging markets.

Source: Janus Henderson Investors at 30 September 2017. These comments are the views of Simon Ward, Chief Economist, and should not be construed as investment advice. These views may differ from those of other Janus Henderson fund managers.

*Demonetisation = involved the cancellation and replacement of high-value banknotes with the aim of curbing counterfeiting and other illegal activities.
** Narrow money = currency in circulation plus demand deopsits.
*** E7 = Brazil, Russia, India, China, Mexico, Korea, Taiwan. G7 = US, Japan, Germany, France, UK, Italy, Canada.


Equity market returns for Q3 2017 (%)Local currencySterlingDollarYTD sterlingQtr dollarYTD dollar
US S&P 5004.
Japan: Topix3.910.
Euro area: Euro Stoxx4.311.14.714.68.124.5
UK: FTSE All Share1.
MSCI Far East ex Japan (US$)--2.719.06.129.2
MSCI Emerging Markets (US$)--3.615.57.025.4

Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 30 September 2017.
Note: the TOPIX Index Value and the TOPIX Marks are subject to the proprietary rights owned by the Tokyo Stock Exchange, Inc. and the Tokyo Stock Exchange, Inc. owns all rights and know-how relating to the TOPIX such as calculation, publication and use of the TOPIX Index Value and relating to the TOPIX Marks. No Product is in any way sponsored, endorsed or promoted by the Tokyo Stock Exchange.

 Forecast P/E 2017Forecast P/E 2018Forecast EPS growth* 2017Forecast EPS growth* 2018
Emerging markets13.712.221.312.1

Source: Thomson Reuters Datastream, Janus Henderson Investors' calculations, and IBES (institutional Brokers' Estimates System) estimates for MSCI Indices as at 30 September 2017. Forecast EPS (earnings per share), Forecast P/E (price-to-earnings ratio).

Consensus GDP growth forecasts (%)201720182019
Euro area2.11.81.5
Asia ex Japan5.95.85.7

Source: Bloomberg, economic forecasts, as at 3 October 2017. Forecast GDP = real gross domestic product.

Euro area: EU member states using euro currency (currently 19)
Asia: China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam
BRICs: Brazil, Russia, India, China
World: G10, Eastern Europe & Africa, Asia, Latin America, Middle East

Consensus inflation forecasts (CPI %)201720182019
Euro area1.51.41.7
Asia ex Japan1.92.52.6

Source: Bloomberg, economic forecasts, as at 3 October 2017. Forecast CPI = consumer price index.

Bonds30 September 2017 yieldQtr return %YTD return %
US 10-year Treasury2.330.050.62
Japan 10-year government bonds0.060.290.13
Germany 10-year Bund0.460.76-1.08
UK 10-year Gilts1.40-0.63-0.32
Corporate bonds: (Barclays Global Aggregate Corporate Index $)-0.090.93
High Yield: (Merrill Lynch Global High Yield $)-2.859.35
Emerging market debt (JPM Global Emerging Markets Debt $)-2.388.73

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 30 September 2017.

Currencies and commodities30 September 2017Qtr return %YTD return (%)
S&P GSCI Total Return Index $-7.20-3.80
Brent oil ($/barrel)-20.401.50
Gold bullion ($/Troy oz)-3.2010.90

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 30 September 2017.

The above data is intended for illustration purposes only and is not indicative of the historical or future performance or the chances of success of any particular strategy. References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security.


Please note the below are the views of the UK-based Janus Henderson Multi-Asset Team at quarter end. They do not represent a Janus Henderson house view or the views of individual fund managers and should not be construed as investment advice.

Positive Up icon    Neutral Neutral icon    Negative Down icon


Image of a Bond certificate
Global corporateYields are low and global growth is pressuring interest rates. Selective central bank asset buying continues and supports prices in the short term.
UK giltsUK economic data has been mixed, while Brexit headwinds appear to be strengthening amid corporate uncertainty and GBP strength.
Global sovereignContinued US growth and improving recoveries in Japan and Europe are likely to overtake recent weak data and gradually raise interest rates.
Emerging market debtUS trade rhetoric has softened and flows have returned to emerging markets (EMs). Prices are rising, but we think EM debt offers selective value.
High yieldPrices are high compared with historical averages, but high yield could benefit from a continuation of the ‘lower for longer’ growth environment.


Image of a bull and a bear
UKBrexit uncertainty continues and drives currency volatility, with a clear tilt away from domestic mid-cap stocks. Yield remains attractive.
EuropeCyclical composition provides scope for earnings growth amid macro improvement. Sentiment is also supportive, as the region is underowned.
USPlenty of growth momentum, but is a crowded market which has performed well. US interest rates and a stronger dollar are tightening financial conditions.
JapanRecent strong performance tempers our enthusiasm, but weaker currency and higher global rates will likely benefit cyclical Japanese stocks.
AsiaA strong US dollar and a managed softening in the Chinese mini-economic cycle remain headwinds. However, valuations and positioning look attractive.
Global emerging marketsStable commodity prices and some political stability have assuaged concerns around Trump’s trade agenda. Some interesting valuation opportunities.


Image indicating various currencies
£/$Brexit negotiations are likely to generate volatility in the short term; however, longer-term economic fundamentals suggest sterling weakness.
£/€Political risks in the eurozone are abating and macroeconomic momentum appears robust; Brexit negotiations will dominate news flow.
£/¥Sterling likely to come under pressure amid Brexit discussions; however, a muted inflation backdrop and active Japanese central bank limit yen upside.


Image of stacked gold bars
PropertyAppears expensive and typically struggles in a rising interest rate environment. However, yield remains higher than many asset classes.
GoldMost key macroeconomic drivers remain unfavourable, but gold retains its useful status as a hedge against unexpected risks.
OilVolatile but in the middle of its 18-month trading range. Oil will likely remain range-bound so long as OPEC¹ members remain compliant.

Source: Janus Henderson Investors at 30 September 2017. These comments reflect the views of Janus Henderson's UK-based Janus Henderson Multi-Asset Team and should not be construed as investment advice. These views may differ from those of other Janus Henderson fund managers.
1OPEC: Organization of the Petroleum Exporting Countries


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