July 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 under pressure from strong labour markets

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:


Fed unfazed
The Federal Reserve hiked rates again while announcing plans to reverse quantitative easing (QE), despite its preferred core inflation measure falling to 1.4%. The Fed is focused on an increasingly tight labour market – unemployment and underemployment1 rates are at 10+ year lows.


Growth resilience
Economic news remained mostly upbeat despite a reduction in policy support. Confidence among entrepreneurs and bankers is the strongest since 2013-14, according to central bank surveys. House prices have slowed but housing sales and starts have continued to grow.


Labour shortage
Labour market tightening continued but has yet to feed through to increased wage pressure. Worker shortages are the most widespread since 1992, according to the Tankan business survey. Cash earnings growth of 0.5% is barely higher than inflation.


Macron relief
Confidence was boosted by the election of Europhile reformist Emmanuel Macron as French President, with the EU Commission’s composite Eurozone economic sentiment indicator reaching a 10-year high. The unemployment rate fell further to 9.3%, an eight-year low.


Inflation surging
Inflation rose to 2.9%, above the Monetary Policy Committee’s forecast, contributing to three out of eight members voting to hike rates. The economy slowed in early 2017 but the unemployment rate fell further to 4.6%, the lowest since 1975.

Emerging markets

Inflation easing
Inflation in the “E7”2​ emerging economies has fallen significantly over the past year, in contrast to a rise in the G73 developed economies. The E7 decline reflects large drops in Brazil, India and Russia due to economic weakness and currency strength.

Trends to watch:


Money revival
Narrow money4 leads the economy and has picked up since early 2017, suggesting stronger growth during the second half. Bank lending is also reviving after weakness. A continuation of these trends could signal a need for faster Fed tightening4.


Policy reversal?
Market interest rates rose significantly during the first half but inflation and currency pressures have eased, giving the authorities scope to reverse policy tightening. Producer prices have stabilised since the spring, while foreign exchange reserves have recovered.


QE reacceleration?
Falling global bond yields allowed the Bank of Japan (BoJ) to slow QE while maintaining domestic yields near zero. A rebound in global yields could force it to step up purchases, attracting domestic criticism – unless the yield cap is lifted.


Core inflation
Unemployment is on course to reach estimates of the “equilibrium” rate in 2018, arguing that the European Central Bank should be withdrawing policy stimulus. Core inflation remains low but has firmed – a further rise could trigger a faster QE exit.


Fiscal deterioration
The Chancellor is under pressure to abandon “austerity” and allow faster public sector pay growth. The fiscal deficit was already forecast to rise this year and a relaxation of discipline would strengthen the case for a rise in Bank rate.

Emerging markets

Relative money
E7 real (i.e. inflation-adjusted) narrow money growth – adjusted for the negative impact of India’s “demonetisation”5 – was above the G7 level between late 2015 and early 2017. A recent closing of the gap could signal less favourable relative economic prospects.

Source: Janus Henderson Investors at 30 June 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.

1 Underemployment includes part-timers wanting to work more hours and people wanting a job but not actively looking for one.
2 E7: Canada, France, Germany, Italy, Japan, UK, US. The European Union is also represented.
3 G7: China, India, Brazil, Mexico, Russia, Indonesia, Turkey.
4 Narrow money = currency in circulation plus demand depsoits and close substitutes.
5 'Demonetisation' involved the cancellation and replacement of high value bank notes with the aim of curbing counterfeiting and other illegal activities.


Equity market returns for Q2 2017 (%)Local currencySterlingDollar
US S&P 5005.54.35.5
Japan: Topix-
Euro area: Euro Stoxx6.77.08.2
UK: FTSE All Share3.03.04.2
MSCI Far East ex Japan (US$)-11.412.8
MSCI Emerging Markets (US$)-9.811.1

Source: Thomson Reuters Datastream, Janus Henderson Investors, index price returns, as at 30 June 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 markets12.911.620.311.1

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

Consensus GDP growth forecasts (%)201720182019
Euro area1.91.61.4
Asia ex Japan5.95.85.7

Source: Bloomberg, economic forecasts, as at 4 July 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 area1.61.51.6
Asia ex Japan2.12.52.7

Source: Bloomberg, economic forecasts, as at 4 July 2017. Forecast CPI = consumer price index.

Bonds30 June 2017 yieldQ2 return %
US 10-year Treasury2.300.35
Japan 10-year government bonds0.09-0.05
Germany 10-year Bund0.47-1.31
UK 10-year Gilts1.19-1.08
Corporate bonds: (Barclays Global Aggregate Corporate Index $)-0.78
High Yield: (Merrill Lynch Global High Yield $)-3.15
Emerging market debt (JPM Global Emerging Markets Debt $)-2.21

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

Currencies and commodities30 June 2017Q2 return %
S&P GSCI Total Return Index $--5.46
Brent oil ($/barrel)--9.12
Gold bullion ($/Troy oz)--0.30

Source: Thomson Reuters Datastream, Janus Henderson Investors, as at 30 June 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. However, selective central bank asset buying continues and supports prices in the short term.
UK giltsUK economic data has been robust and inflation is rising; however, Brexit headwinds appear to be strengthening with recent weaker consumer data.
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 debtTrade policy is not a US priority and flows have returned to emerging markets (EMs). Prices are rising, but we think EM debt represents some of the best value in bonds.
High yieldSpreads (the yields available over corresponding government bonds) are narrow on historical measures, but high yield should benefit from an improving growth outlook and stabilisation in commodity markets.


Image of a bull and a bear
UKThe benefits from weaker sterling are largely offset by Brexit uncertainties, 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 a crowded market. Higher US interest rates and a stronger dollar are tightening financial conditions materially.
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 June 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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