October 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.


Profits at risk from slower economic growth and rising wage pressures

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:


Confident Fed
The Federal Open Market Committee raised its interest rate target to 2.0-2.25% while continuing to suggest a further quarter-point increase in December and three more in 2019. Annual growth of hourly earnings rose to 2.9% in August, a nine-year high.


Further slowdown
Money and credit trends remained weak, suggesting that a shift towards policy easing since early 2018 has yet to gain traction. Official and private sector manufacturing purchasing managers’ indices fell sharply in September, with export orders sliding further.


BoJ still dovish
The Bank of Japan (BoJ) strengthened its forward guidance, promising to maintain current low interest rates for an extended period. The economy was hit by natural disasters last quarter but a rebound is expected in late 2018.


Wages pick up
Economic news continued to disappoint but the European Central Bank pressed ahead with plans to halt securities purchases at year-end. Annual growth in compensation per employee rose to 2.3% in the second quarter, the highest since 2011.


Inflation concerns
The Monetary Policy Committee raised Bank rate to 0.75%, citing inflationary risks from weak supply-side growth – estimated at only around 1.5% per annum. Consumer price inflation rebounded unexpectedly to 2.7% in August, a six-month high.

Emerging markets

Rising rates
Central banks in a number of emerging economies tightened policies, mainly in response to currency weakness. In addition to crisis-hit Argentina and Turkey, interest rates were raised in India, Russia, Indonesia, Philippines and the Czech Republic last quarter.

Trends to watch:


Economic slowdown
Weak money trends suggest that economic prospects have deteriorated, probably reflecting Federal Reserve tightening, negative tariff effects and slowing global activity. Softer data could contribute to the Fed pausing its rate hike campaign in early 2019.


Capital outflows
Forecasters expect higher infrastructure spending and further monetary policy easing to cushion economic weakness. A pick-up in capital outflows, as in 2015-16, could limit the authorities’ room for manoeuvre, increasing the risk of a “hard landing”.


Inflation firming
Consumer price inflation remains well below the 2% target but is rising again as a drag from earlier exchange rate strength fades. With labour shortages pushing up wage growth, the increase could be sustained – barring another yen surge.


Profits squeeze
Wage growth has picked up but core consumer price inflation remains stuck at a low level, suggesting that firms’ pricing power has been constrained by a slowing economy. Profit margin compression could depress business investment and hiring.


Fiscal easing
Public sector borrowing is undershooting and the Chancellor could signal a 2019 give-away in his forthcoming Budget – either to cushion a cliff-edge Brexit or in anticipation of a medium-term boost to tax receipts from a successful deal with the European Union.

Emerging markets

Inflation pick-up
Consumer price inflation is under upward pressure from currency-driven import cost rises, with stronger dollar oil prices providing an additional fillip. Inflation concerns could force central banks to step up policy tightening despite slowing economic momentum.

Source: Janus Henderson Investors at 30 September 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.


Equity market returns for Q4 2018 (%)Qtr local currencyYTD local currencyQtr sterlingYTD sterlingQtr dollarYTD dollar
US S&P 500-14.0-6.2-11.9-0.4-14.0-6.2
Japan: Topix-17.8-17.8-12.9-10.4-14.9-15.6
Euro area: Euro Stoxx-13.2-14.8-12.5-13.8-14.5-18.9
UK: FTSE All Share-11.0-13.0-11.0-13.0-13.1-18.0
MSCI Far East ex Japan (US$)---8.0-12.1-10.2-17.2
MSCI Emerging Markets (US$)---5.6-11.5-7.9-16.6

Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 30 September 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 2018Forecast P/E 2019Forecast EPS growth 2018 (%)Forecast EPS growth 2019 (%)
Emerging markets11.310.411.99.0

Source: Thomson Reuters Datastream, Janus Henderson Investors' calculations, and IBES (institutional Brokers' Estimates System) estimates for MSCI Indices as at 30 September 2018. Forecast EPS (earnings per share), Forecast P/E (price-to-earnings ratio).

Consensus GDP growth forecasts (%)201820192020
Euro area1.91.61.5
Asia ex Japan6.05.75.6

Source: Bloomberg, economic forecasts, as at 30 September 2018. 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 %)201820192020
Euro area1.71.71.6
Asia ex Japan2.42.52.6

Source: Bloomberg, economic forecasts, as at 30 September 2018. Forecast CPI = consumer price index.

Bonds31 December 2018 yieldQtr return %YTD return %
US 10-year Treasury2.693.81-2.90
Japan 10-year government bonds0.001.320.72
Germany 10-year bund0.252.242.87
UK 10-year gilts1.272.770.61
Corporate bonds: (Barclays Global Aggregate Corporate Index $)--1.05-5.35
High yield: (Merrill Lynch Global High Yield $)--3.79-3.33
Emerging market debt (JPM Global Emerging Markets Debt $)--1.19-4.61

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 30 September 2018.

Currencies and commodities31 December 2018Qtr change (%)YTD change (%)
S&P GSCI Total Return Index $--22.94-13.82
Brent oil ($/barrel)--35.83-20.24
Gold bullion ($/Troy oz)-7.54-1.70

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


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 corporateRecent risk-off sentiment has led to broad-based underperformance. The asset class is at further risk from slowing earnings growth.
UK giltsMixed economic data prints and Brexit uncertainty have kept yields at low levels, but this asset class offers good diversification amid equity volatility.
Global sovereignUpwards pressure remains on yields due to the unwinding of quantitative easing and monetary tightening, but risk-off sentiment has kept yields at low levels.
Emerging market debtCountry-specific risks remain a headwind but tempering dollar strength and attractive spreads present a potential entry point in local currency debt.
High yieldSpreads have been widening and the asset class is further at risk from fiscal tightening and slowing global growth.


Image of a bull and a bear
UKThe UK market appears attractively valued, as do dividend yields. However, Brexit-related uncertainty continues to weigh on investor sentiment.
EuropePolitical uncertainty will continue to cloud the market outlook but we remain constructive owing to attractive valuations.
USDespite a correction in valuations during the recent sell-off, monetary stimulus is fading and corporate profitability is at risk of downgrades.
JapanJapanese market valuations are at very attractive levels but risks in the form of trade war tensions and a strengthening yen still remain.
AsiaWhile trade tensions have been a headwind to the region, share price valuations and corporate earnings remain constructive.
Global emerging marketsIdiosyncratic risks and a strong dollar have provoked outflows, but sentiment seems bearish in light of attractive share price valuations and tempering dollar strength.


Image indicating various currencies
£/$Brexit-related volatility plagues the UK, while a rising debt burden and trade war concerns dampen dollar bullishness.
£/€Political developments seem likely to continue to drive headlines and market moves on both sides of the Channel.
£/¥Risk sentiment is likely to affect the yen, while Brexit drives news flow and Japanese monetary expansion continues in the background.


Image of stacked gold bars
PropertyProperty appears expensive and typically struggles in a rising interest rate environment. However, yields remain higher than many asset classes.
GoldGold is a useful hedge to hold as markets become more volatile. Returns have improved as demand has increased in the recent risk-off environment.
OilPoor supply and demand dynamics have hit oil prices, but this has scope to rebound as markets price in a slightly better macroeconomic outlook for 2019.


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