July 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.


Global economy losing momentum as policy risks rise

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:


Hawkish Fed
The Federal Reserve hiked rates again while signalling an increased likelihood of two further increases in 2018. The central bank raised its inflation forecast while lowering its projection for the unemployment rate to 3.5%, well below “equilibrium”.


Currency reversal
The renminbi posted its largest weekly fall since the August 2015 devaluation as fears rose of a US-China tariff war. Economic news was mixed, with retail sales and infrastructure investment slowing but housing activity picking up.


Low inflation
The Bank of Japan kept policy stable despite forecasting that consumer price inflation – excluding the impact of a scheduled consumption tax rise – will remain below the 2% target in 2019-20. Wage growth edged higher as labour shortages intensified.


Negative surprises
Activity data continued to undershoot forecasts but consumer price inflation rose to 2.0%, reflecting higher energy and food prices. The European Central Bank signalled that bond purchases will slow from September and end in December.


Monetary weakness
The Monetary Policy Committee backtracked on plans for a May rate hike following weaker-than-expected activity data. Annual money growth fell to half its pace in late 2016, suggesting subdued economic prospects and receding medium-term inflation risks.

Emerging markets

Rising rates
Currency weakness contributed to central banks in a number of countries tightening policy, with others scrapping planned easing. Official rates rose last quarter in Turkey, Indonesia, India, Mexico, Philippines, Czech Republic, Argentina and Romania.

Trends to watch:


Inflation pick-up
Core inflation – as measured by the consumption price index excluding food and energy – rose to 2.0% in May, a six-year high. A further increase could force the Federal Reserve to keep tightening policy even if the economy slows.


Weak money trends
The People’s Bank of China has started to ease monetary policy to support the economy but the impact could be offset by tightening credit market conditions and capital outflows. A cautious view of economic prospects is warranted until money growth recovers.


Stronger news?
Gross domestic product (GDP) posted a surprise contraction in the first quarter but available data suggest a second-quarter rebound. Consumer price inflation may also reverse a recent decline, supporting stable Bank of Japan policy.


Weakening confidence
The purchasing managers’ composite output index fell to an 18-month low in May but optimists claim that its level is still consistent with solid economic growth. Money trends and leading indicators suggest a further slide, however.


Unemployment reversal?
Weak economic growth is feeding through to the labour market, with total hours worked stagnant over the past year. A rise in unemployment would surprise the Monetary Policy Committee and argue against raising rates.

Emerging markets

Capital outflows
Investor outflows from emerging markets have so far been modest and foreign exchange reserves remain at a healthy level in most economies. A US-China tariff war could accelerate selling and sustain downward pressure on currencies.

Source: Janus Henderson Investors at 30 June 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 Q2 2018 (%)Qtr local currencyYTD local currencyQtr sterlingYTD sterlingQtr dollarYTD dollar
US S&P 5002.
Japan: Topix0.9-4.83.0-0.8-3.2-3.1
Euro area: Euro Stoxx0.8-2.21.7-2.6-4.3-4.9
UK: FTSE All Share7.9-0.57.9-0.51.6-2.9
MSCI Far East ex Japan (US$)---0.9-3.2-6.7-5.5
MSCI Emerging Markets (US$)---2.9-5.4-8.7-7.7

Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 30 June 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 2018Forecast EPS growth 2019
Emerging markets11.810.615.911.5

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

Consensus GDP growth forecasts (%)201820192020
Euro area2.21.91.6
Asia ex Japan5.95.95.8

Source: Bloomberg, economic forecasts, as at 5 July 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 area1.61.61.7
Asia ex Japan2.22.62.7

Source: Bloomberg, economic forecasts, as at 5 July 2018. Forecast CPI = consumer price index.

Bonds30 June 2018 yieldQtr return %YTD return %
US 10-year Treasury2.86-1.29-4.32
Japan 10-year government bonds0.030.100.22
Germany 10-year Bund0.311.781.63
UK 10-year Gilts1.330.52-0.92
Corporate bonds: (Barclays Global Aggregate Corporate Index $)--1.62-4.09
High Yield: (Merrill Lynch Global High Yield $)--1.29-1.51
Emerging market debt (JPM Global Emerging Markets Debt $)--3.51-5.23

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

Currencies and commodities30 June 2018Qtr change (%)YTD change (%)
S&P GSCI Total Return Index $-9.905.80
Brent oil ($/barrel)-15.7017.50
Gold bullion ($/Troy oz)-1.5012.60

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 30 June 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 corporateGlobal corporates appear over-owned, offer low yields and are vulnerable to both rising interest rates and the end of quantitative easing.
UK giltsSluggish economic data and a general risk-off mood following Italian political turmoil have driven yields lower. However, gilts have outperformed relative to other developed market government bonds.
Global sovereignUpward pressures remain on yields due to the unwinding of quantitative easing, tightening monetary policy conditions and growth expectations.
Emerging market debtBoth local currency depreciation due to country-specific risk and a strong dollar have been a head-wind. We remain positive on hard currency debt owing to attractive yields and wider spreads.
High yieldHigh yield has sold-off since February. We believe there is still some way to go as quantitative easing ends and credit conditions tighten.


Image of a bull and a bear
UKThe UK market seems attractively valued while dividend yields also remain attractive. Brexit-related uncertainty continues to weigh on sentiment, however.
EuropeThe cyclical tilt of this market should take full advantage of the global growth trend. However, political uncertainty is, and will continue to remain, a tail-risk.
USBoth economic data and the markets have reflected persistent positive momentum. While the effects of fiscal stimulus have seemingly outweighed the trade developments, we continue to monitor for potential escalations.
JapanThe Japanese market has proved somewhat resilient to rising trade tensions. A weaker yen and corporate reform have provided support to the performance of this export-driven market.
AsiaTrade tensions have been a headwind to this market. However, valuations and corporate earnings remain constructive.
Global emerging marketsAlthough the risk-off environment has provoked outflows, we remain positive on the opportunities in global emerging markets.


Image indicating various currencies
£/$Brexit-related volatility plagues the UK amid an improving macro backdrop, while a building debt burden moderates the dollar bull case in a maturing cycle.
£/€Broadening economic activity supports both currencies but political developments will continue to drive the headlines and market moves.
£/¥Risk sentiment is likely to affect the yen as investors seek safe haven assets. 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 has effectively hedged against recent market volatility and remains a useful asset to hold should geopolitical uncertainty persist.
OilThe losses from sources such as Iran, Libya or Venezuela have offset the rising output from OPEC¹ in an effort to balance supply and demand. This has maintained an upward pressure on prices.


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