January 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 growth strong but probably peaking

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:


Tax boost
Stocks cheered passage of the Tax Cuts and Jobs Act, which the Tax Foundation expects will boost GDP by 0.4% in 2018 and 1.7% over the long run – most other analysts, however, expect a significantly smaller impact.


Consumer-led growth
Consumption accounted for almost two-thirds of GDP growth in the first three quarters of 2017 – the highest proportion since 2000. Consumer confidence remained buoyant despite policy tightening and slowing house prices, reflecting a strong labour market.


Stronger external accounts
Balance of payments trends suggest support for the yen. The current account surplus rose to 4.1% of GDP in the 12 months to October 2017, while capital inflows to Japenese markets exceeded flows overseas, following a large shortfall in 2015-16.


Buoyant economy
Economic news continued to surprise positively. Annual GDP growth rose to 2.6% in the third quarter of 2017, the strongest since 2011 and far above potential expansion estimated by the European Commission at only 1.4% per annum.


Policy shift
The Monetary Policy Committee raised rates for the first time in 10 years in response to above-forecast inflation and a further fall in unemployment. The November Budget relaxed fiscal tightening, with a net giveaway of 0.4% of GDP in 2019-20.

Emerging markets

India vs China
Indian annual GDP growth recovered to 6.3% in the third quarter of 2017, while Chinese growth slipped to 6.8%. Fading drags from monetary and tax reforms may allow India to regain growth leadership in 2018.

Trends to watch:


Economy overheating?
The unemployment and job openings rates have converged, a development historically followed by a pick-up in unit labour cost growth. Stronger labour cost pressures would boost inflation, squeeze margins and force the Federal Reserve to keep tightening policy.


Policy reversal?
Money growth has fallen in response to monetary and regulatory policy tightening, suggesting moderate economic expansion and an easing of inflationary pressures. Slower price gains may allow the authorities to step off the policy brakes, assuming currency stability.


Inflation pick-up
Consumer price inflation excluding fresh food rose to 0.9% in November, while producer price inflation for goods and services is the strongest since 2008. With the economy solid, pressure to lift the zero target for bond yields is building.


Policy too loose
Quantitative easing and negative rates continue to suppress government bond yields, which are at record lows relative to nominal GDP growth. The European Central Bank’s refusal to adjust policy risks weakening the euro and causing an inflation overshoot.


Tightening bias
Money trends have recovered modestly since early 2017, suggesting stable economic expansion. With wage growth firming and inflation likely to remain stubbornly high, the Monetary Policy Committee may hike again in spring 2018, assuming a Brexit transition deal.

Emerging markets

Brazil vs Russia
Brazil and Russia suffered serious recessions in 2015-16 but staged modest recoveries in 2017. Policy rates have been cut by more in Brazil but money trends are stronger in Russia, suggesting superior economic prospects.

Source: Janus Henderson Investors at 31 December 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.


Equity market returns for Q4 2017 (%)Qtr local currencyYTD local currencyQtr sterlingYTD sterlingQtr dollarYTD dollar
US S&P 5006.
Japan: Topix8.519.77.613.28.423.9
Euro area: Euro Stoxx-0.910.1-
UK: FTSE All Share4.
MSCI Far East ex Japan (US$)--6.727.07.639.0
MSCI Emerging Markets (US$)--

Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 31 December 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 markets13.912.322.713.1

Source: Thomson Reuters Datastream, Janus Henderson Investors' calculations, and IBES (institutional Brokers' Estimates System) estimates for MSCI Indices as at 31 December 2017. Forecast EPS (earnings per share), Forecast P/E (price-to-earnings ratio).

Consensus GDP growth forecasts (%)201720182019
Euro area2.32.11.8
Asia ex Japan6.05.95.8

Source: Bloomberg, economic forecasts, as at 4 January 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 %)201720182019
Euro area1.51.51.6
Asia ex Japan1.82.52.6

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

Bonds31 December 2017 yieldQtr return %YTD return %
US 10-year Treasury2.41-0.77-0.16
Japan 10-year government bonds0.050.260.39
Germany 10-year Bund0.420.36-0.37
UK 10-year Gilts1.231.611.28
Corporate bonds: (Barclays Global Aggregate Corporate Index $)-0.000.93
High Yield: (Merrill Lynch Global High Yield $)-0.7710.19
Emerging market debt (JPM Global Emerging Markets Debt $)-0.549.32

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 31 December 2017.

Currencies and commodities31 December 2017Qtr return (%)YTD return (%)
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 31 December 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. Spreads approaching all time tights and prices vulnerable to the end of quantitative easing.
UK giltsUK economic data has been mixed, while Brexit headwinds appear to be strengthening with 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 macroeconomic improvement. Sentiment is also supportive, as the region is underowned.
USPlenty of growth momentum but a crowded market and historic margins. 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; UK macroeconomic fundamentals weak but US political situation also uncertain.
£/€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.
OilRecent performance and increased speculative positioning urge caution, $65 dollar level could increase supply from US shale and pressure prices.

Source: Janus Henderson Investors at 31 December 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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