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European markets started the week mixed, with investors exercising caution prior to the FOMC announcement later on in the week, which turned out to be a catalyst for a brief rally. Fitch Ratings maintained the sovereign ratings of the UK with a ‘negative’ AA outlook. The agency kept the UK’s credit rating at ‘AA’ on Friday. Fitch noted that deep capital markets and sterling’s international reserve currency status together with high governance and human development indicators further support the ratings.

A surge in Italian banks resulted in stocks rallying midweek and drove banks higher elsewhere as well. The Italian banks advanced after UniCredit announced a restructuring plan. The trend was extended on Thursday after announcements from the Bank of England and the Swiss National Bank were taken positively from the markets. The Bank of England left its bank rate at 0.25%, its asset purchase programme at £435bn and its corporate bond purchases at £10bn. The decision was unanimous. The Norges Bank also left its benchmark rate at 0.50%.

The upcoming week will expectedly be much lower in terms of volumes and key events, however, one to watch out for will be the GDP figures (Q3 2016 final) announcement on the 23rd December.

Looking more broadly across other sectors and asset classes – US, EM and oil – there are most definitely upcoming catalysts that can help drive growth throughout the entire range of equity. Will 2017 be the AIM year when smaller more nimble players exploit macro trends?

US growth

Trump is president-elect and is set to go, so let’s look at where he’s going to stimulate the US economy and where the opportunities exist. Since his election, investors have pushed US equities to record highs, with a higher expectation of government spending and tax cuts designed to lift the economy’s annual growth rate to 4% – 4%, you say? Most said he wouldn’t win.

US treasuries

The prospect of a more aggressive Federal Reserve and surging oil prices hit global bonds at the start of the week. Yields jumped to as much as five basis points last week, its highest level in 17 months before paring its losses (ten-year treasury note hit above 2.5% for the first time since 2014).

EM borrowing

Emerging market corporates are now choosing to borrow in euros rather than dollars as spreads have widened between US Treasuries and Bunds. The widening spread can make it cheaper to borrow euros as well as creating an opportunity for yield-starved institutions and retail appetite for higher-yielding EM corporate bonds.

Oil

The world’s major oil and gas companies will turn cash-flow positive for the first time in three years in 2017 if the Opec production cartel succeeds in keeping the oil price above $55 a barrel. Many are suggesting that oil is now at the bottom of the U recovery curve, with 2017 providing a sound grounding for further modest recovery.


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