Herewith the latest edition of the Monthly Insights. We trust that this will contribute to a broad overview of the interest rate, currency and financial markets. Please feel free to address any questions or comment on the contents to the undersigned.
- Our growth forecast for 2017 remains unchanged, with GDP expected to grow by about 1.1%. Thereafter, we expect GDP growth to accelerate moderately to 1.5% for 2018 and 2.1% for 2019. Available monthly statistics suggest that economic activity in most developed countries held up well in early 2017. Inflation is staging a comeback in some advanced economies, with higher fuel prices being mostly to blame. Steadier conditions prevailed in most emerging markets early in 2017.
- The Fed’s own estimation of hikes is characteristically hawkish, with the FOMC seeing three hikes of 25bps for the year. Market expectations have only just started to reflect this hawkish stance. While we still believe three rate hikes this year is somewhat on the aggressive side, there is a chance of it materialising given the fact that this year is being characterised by rising inflation and a better economic and labour market outlook.
- Recent local developments generally support a neutral to softer monetary policy stance – inflation appears to have turned the corner and some of the upside risks to the inflation outlook have eased. Barring any shocks, domestic or external, and should inflation start to trend lower in a more convincing manner, interest rates are forecast to decline towards year-end or in early 2018.
- Global equity markets were generally upbeat in February 2017, extending the rally for the YTD. In emerging markets, stronger FX market performances against the dollar have buoyed $-based returns. Global commodity markets remain upbeat on US fiscal stimulus expectations, but downside risks to oil are likely over the medium-term.