GLOBAL SNAPSHOT

April 2018

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.

ECONOMIC OVERVIEW

Global economy losing momentum


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:

US

Bullish Fed
Federal Open Market Committee members upped their GDP growth forecasts for 2018 and 2019, partly in response to fiscal easing. A slightly steeper rise in interest rates is expected to be needed to hold inflation at the 2.0% target.

China

Deleveraging focus
Premier Li announced an unchanged GDP growth target of about 6.5% for 2018 but signalled that policy will focus on containing financial risk and tackling quality-of-life issues. The broad “total social financing” credit measure continued to slow.

Japan

Modest wage rise
Preliminary results indicated that spring pay negotiations delivered only a slightly larger increase than in 2017, despite worker shortages, bumper profits and tax incentives. Meanwhile, Bank of Japan Governor Kuroda was reappointed for another five-year term.

Eurozone

Momentum cooling
Consensus economic optimism was dented by a series of weaker-than-expected reports. The purchasing managers’ composite output index fell to a 14-month low in March, though remains slightly above its long-run average. The European Central Bank dropped its “easing bias”.

UK

Wages accelerating
Annual growth of average weekly earnings, smoothed over three months, rose to 2.8% in January, the fastest since 2015. A preliminary agreement was reached on a Brexit transition through end-2020. Monetary Policy Committee communications raised expectations of a May rate rise.

Emerging markets

Policy independence
Subdued inflationary pressures and US dollar weakness allowed monetary authorities in most emerging market countries to decouple from US Federal Reserve policy tightening. Central banks in Brazil, Colombia, Peru, Russia and South Africa cut interest rates during the first quarter.

Trends to watch:

US

Consumer spending
Consumers pulled back in January/February but spending is widely expected to reaccelerate in response to tax cuts and continued labour market strength. Weak money trends, rising rates and a low saving ratio suggest downside risk, however.

China

Policy reversal?
Weak money trends suggest that economic momentum and inflation will cool, casting doubt on forecasts of further policy tightening. A regulatory clampdown boosted term money market rates in 2017 – watch for a reversal as the authorities move to support growth.

Japan

Core inflation
Consumer price inflation excluding fresh food and energy rose to 0.5% in February, a 19-month high. A drag from mobile phone charges may lessen but recent yen strength and still-subdued wage growth threaten to slow the upswing.

Eurozone

Strong euro
Net exports contributed significantly to GDP growth in the second half of 2017 but euro appreciation and slowing global demand threaten a reversal. The European Central Bank is under pressure to delay policy normalisation to relieve upward pressure on the currency.

UK

Monetary weakness
Money trends have softened further since the November interest rate rise, suggesting deteriorating economic prospects. The Monetary Policy Committee is worried about rising labour cost pressures but should wait for a recovery in monetary data before hiking again.

Emerging markets

Inflation turnaround
Consumer price inflation is firming in many emerging economies as suppressing effects from earlier currency strength and economic weakness wane. The rise is from a low base but may contribute to more central banks moving towards tightening policy.



Source: Janus Henderson Investors at 31 March 2018. These comments are the views of Simon Ward, Economic Adviser, and should not be construed as investment advice. These views may differ from those of other Janus Henderson fund managers.


KEY MARKET DATA


Equity market returns for Q1 2018 (%)Local currencySterlingDollarYTD sterlingQtr dollarYTD dollar
US S&P 500-1.2-1.2-4.7-4.7-1.2-1.2
Japan: Topix-5.6-5.6-3.6-3.60.10.1
Euro area: Euro Stoxx-3.0-3.0-4.2-4.2-0.6-0.6
UK: FTSE All Share-7.8-7.8-7.8-7.8-4.3-4.3
MSCI Far East ex Japan (US$)---2.3-2.31.31.3
MSCI Emerging Markets (US$)---2.5-2.51.11.1

Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 31 March 2018.
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
World17.215.116.714.0
Developed17.815.615.713.8
Emerging markets14.212.422.715.1
UK14.313.223.18.2
US20.417.011.719.9
Eurozone14.713.712.77.3
Japan18.113.513.834.8

Source: Thomson Reuters Datastream, Janus Henderson Investors' calculations, and IBES (institutional Brokers' Estimates System) estimates for MSCI Indices as at 31 March 2018. Forecast EPS (earnings per share), Forecast P/E (price-to-earnings ratio).


Consensus GDP growth forecasts (%)201720182019
US2.32.82.4
Japan1.71.31.0
Euro area2.32.42.0
UK1.41.51.5
Asia ex Japan6.25.95.8
BRICs5.75.75.6
World3.73.83.7

Source: Bloomberg, economic forecasts, as at 4 April 2018. Forecast GDP = real gross domestic product.

Constituents:
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
US2.12.42.2
Japan0.51.01.1
Euro area1.51.51.6
UK2.72.52.1
Asia ex Japan1.92.52.7
BRICs2.32.62.9
World3.13.23.1

Source: Bloomberg, economic forecasts, as at 4 April 2018. Forecast CPI = consumer price index.


Bonds31 March 2018 yieldQtr return %YTD return %
US 10-year Treasury2.75-3.07-3.07
Japan 10-year government bonds0.040.120.12
Germany 10-year Bund0.50-0.16-0.16
UK 10-year Gilts1.39-1.43-1.43
Corporate bonds: (Barclays Global Aggregate Corporate Index $)--2.52-2.52
High Yield: (Merrill Lynch Global High Yield $)--0.22-0.22
Emerging market debt (JPM Global Emerging Markets Debt $)--1.78-1.78

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 31 March 2018.

Currencies and commodities31 March 2018Qtr change %YTD change (%)
Yen/$106.35--
Yen/£149.19--
$/£1.40--
Euro/$0.81--
Euro/£1.14--
S&P GSCI Total Return Index $-2.192.19
Brent oil ($/barrel)-5.225.22
Gold bullion ($/Troy oz)-1.531.53

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 31 March 2018.

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.

ASSET ALLOCATION DASHBOARD


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

BONDS

Image of a Bond certificate
 OutlookComments
Global corporateLow yields, compressed spreads and vulnerability to both rising interest rates and the end of QE make this asset class less attractive in our view.
UK giltsSofter UK economic data has been driving yields lower despite a breakthrough in Brexit negotiations. However, gilts have outperformed relative to other developed market government bonds.
Global sovereignSovereigns are negatively correlated to sustained economic global growth momentum, the end of QE and interest rate pressures across developed economies.
Emerging market debtThe asset class has seen good inflows amid positive political and economic developments. Strength of local currency debt has led us to increase our exposure to hard currency debt following recent volatility and dollar weakness.
High yieldDespite stretched valuations, the high carry makes high yield attractive in the credit space. This is supported by strong economic growth and less sensitivity to rising interest rates.

EQUITIES

Image of a bull and a bear
 OutlookComments
UKDespite a market that seems attractively valued, investor outflows continue to persist due to abating macroeconomic indicators and Brexit-related uncertainty.
EuropeThe cyclical tilt of this market should take full advantage of the global growth trend. However, amid some disappointing economic data points we are closely monitoring the upcoming earnings season results.
USWhile there is some positive momentum, valuations remain stretched and the potential impact of Trump's protectionist trade stance remains difficult to quantify.
JapanEarnings have been particularly strong and the market remains undervalued in our view. However, we remain cautious on the impact of US trade developments.
AsiaThe region is at risk of disruption owing to high trade exposure to the US. However, sentiment remains positive and earnings are strong.
Global emerging marketsWe continue to see positive flows and good valuations. US trade tariffs should have limited impact on the region's growth momentum, although we are monitoring these closely.

CURRENCIES

Image indicating various currencies
 OutlookComments
£/$Softening economic indicators and Brexit-related volatility plague the UK, while twin deficits and political risk weigh on the dollar.
£/€Some political uncertainty is likely to persist in the Eurozone. Brexit negotiations will continue to dominate the headlines despite the recently struck transition deal.
£/¥Amid positive news flow on developments in the Korean Peninsula, yen strength is unlikely to persevere while sterling will have to navigate weakening economic data and Brexit developments.

ALTERNATIVES

Image of stacked gold bars
 OutlookComments
PropertyProperty appears expensive and typically struggles in a rising interest rate environment. However, yields remain higher than many asset classes.
GoldGold has effectively hedged against recent market volatility and remains a useful asset to hold should geopolitical uncertainty persist.
OilFlaring geopolitical tensions and stabilising US shale supply are helping maintain oil prices at high levels but we remain cautious on the asset class.

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