Market Comment- Storm in a (bond) Teacup

Tue 06 Feb 2018

Last week saw a 3.5% pullback for global equity markets, the first since 2016. One reason is a deterioration in global economic data. The second factor is the Federal Reserve, who’s stronger language on inflation and growth, driven by the corporate tax cuts, has made investors realise that its consensus opinion of 2 rate hikes as opposed to the Fed’s predicted 3, may have to adjust to account for the possibility of higher inflation. As a result, 10 year yields, previously anchored near 2.4%, shot up to 2.84% as of Monday. Right now this is a storm in a teacup. The Fed can still come back with some dovish messaging and save the day. So long as it remains contained any correction will probably be short-lived, creating opportunities for active managers.