Uncertainty prevails globally, geopolitically speaking.

Some voters, in the U.S. and well beyond our shores, are now leaning somewhat toward a strong-handed approach, preferably by perceived outsiders, in search of answers to problems viewed as intractable. Will it give rise to an era of reduced tolerance, greater tribalism and nationalistic “…us first”? Beyond the social, political and military aspects of the question, the answers will certainly impact trade, budget deficits, inflation, interest rates and earnings…and, hence, financial markets. In the past, this direction has not been user-friendly for risk assets.

Meanwhile, financial assets are broadly weathering things reasonably well.

Tony Caxide

North America

Tony M. Caxide, CFA®

Chairman - Senior Investment Council

As we seek to gather economic and financial market “forensic evidence” that suggest a future direction, we look both in the weeds and at altitude to ensure that we don’t miss the forest for the trees.

Currently, a crucial element of describing the whole relates to what the new administration and Republican Congress may implement. We have winnowed things down to five key areas. Two of them we have flagged as caution – capturing the concept of reasonably “open borders” (to trade, etc.) as well as central bank independence. Two others appear rather more likely to be positives – reform and fiscal stimulus, like tax cuts. And the final one most probably is a negative, pertaining to future inflation and interest rates.

Our views could change, but this is our current “Jell-O” assessment – it has shape, but it’s hardly cemented and can readily change upon good evidence.

This framework should serve us well in discerning where the U.S. and global markets will head.

Jeffrey G, Wilkins


Jeffrey G. Wilkins,

Deputy Chief Investment Officer

Recent data coming out of Japan has been encouraging. Since November, the Japanese yen has generally remained above ¥110 per dollar, which is about 10% weaker than where it traded for the majority of 2016. A weaker yen translates into higher profits for exporters and more expensive imports for Japanese consumers, both of which could help stoke inflation if they persist. In the fourth quarter, Japan’s GDP grew at an annualized rate of 1% due to better consumption and exports in particular. Leading indicators point to a brighter future in the near term, and the labor market is as tight as it has been in decades. Despite such good news, the yen could be vulnerable to bouts of global risk aversion and increased U.S. protectionism. A stronger currency could quickly undermine the green shoots of growth and inflation witnessed in the past few months.


Srinath Sampath, CFA®, PhD

Managing Director, Portfolio Management

Strong inflation numbers and a gradually improving macroeconomic environment in Europe have caused several to wonder whether the quantitative easing program implemented by the European Central Bank (ECB) has run its course. However, ECB President Mario Draghi intends to have the program extend through at least the end of this year, albeit with a lower amount of monthly bond purchases after the first quarter. Industrial production and retail sales are strong, unemployment continues to decline, and annualized growth at 1.7% is adequate. Dark clouds loom over the horizon, however, with the Greeks owing their creditors a substantial repayment in July and elections around the corner for the Netherlands, France, Germany and potentially Italy, where surprise outcomes, like those in the U.S. presidential election, could steer the continent toward a more populist and “euroskeptic” stance, consistent with last year’s Brexit vote.


Jeff (Shengde) Liu, CFA®

Managing Director, Portfolio Management

The U.K. economy maintained a healthy pace of expansion in the final quarter of 2016, with growth near 2%. The service sector accounted for most of the expansion, as household appetite for credit remained elevated six months after Britain voted to leave the EU. The housing market was also resilient. Recent home loan data indicates that housing prices are likely to hold up. U.K.’s production sector posted a strong gain in December, driven by a 10% surge in pharmaceuticals. Manufacturing production is running at a robust 4-5%. Looking forward, a surge in inflation – near 2.5% and heading higher – could cause problems with the central banks’ current loose monetary stance. It also may be weakening domestic demand. We also see a risk that rising input prices (February producer prices are near 5%) could put pressure on corporate profit margins.

Emerging Markets

Jeff (Shengde) Liu, CFA®

Managing Director, Portfolio Management

The macro outlook for EM continues to improve. The hard landing predicted by Wall Street pundits in early 2016 did not happen. China is implementing its economic restructuring firmly, albeit slowly. China’s retail sales growth continues to accelerate and its manufacturing sector also recovered from contraction in 2015. India seems to be recovering from the turmoil of last year’s currency reform. In Latin America, Brazil is expected to walk out of recession sometime this year. Mexico faces some challenges from the rhetoric of the Trump administration, and the peso is at its weakest point in 10 years. Both manufacturing and service indicators suggest weak growth or contraction. However, as natural resources exporting countries, Latin America could surprise us on the upside in the next 1-2 years if the expected U.S. fiscal stimulus and infrastructure renovation plan gets implemented.