BNP Paribas Asset Management

World Water Day on 22 March 2018 provided yet another timely reminder that water is humanity’s most precious resource – and that we must strive ceaselessly to ensure access to it for as many people as possible.

The first few months of 2018 have brought confirmation of continued synchronised above-trend global economic growth, lifting the long shadow cast by the Great Financial Crisis (GFC) of 2008/09, dissipating the deflationary risks that have weighed on developed economies in recent years and putting central banks on the path towards interest-rate normalisation.

Our outlook for US inflation and growth has brightened considerably since the start of 2018, so we have lifted our targets for both US Treasury yields and TIPS-based breakeven inflation rates. Here, we review the factors we see as contributing to the rise in US inflation and look at the potential monetary policy response from the Federal Reserve (Fed).

Why invest in smaller companies?

The publication, on 2 February, of a non-farm payrolls report showing the biggest jump in wage gains since the end of the Great Financial Crisis, signalling a pick-up in US inflation, prompted a 10% correction in the S&P 500 equity index. After a rally throughout 2017 amid low volatility, this was – some would say – a healthy injection of volatility into financial markets.

What are the options for managing cash in the current environment of mostly negative interest rates? Philippe Renaudin, Head of the Money-Market team at BNP Paribas Asset Management, and Patrick Barbe, Head of the Euro Bond team, believe that it is still possible to generate competitive returns through active management and opportunistic investment strategies.

Is anyone surprised? By the end of the week beginning Monday 5 February, the US S&P 500 index had fallen by 10% from its record high on 26 January and market conditions remained volatile.

The Trump administration’s late 2017 tax package seeking, among other measures, tax cuts for US businesses and households, may be a feather in the cap for Republican politicians, but from an economic perspective, we believe the negatives - which include a boost to the fiscal deficit - are likely to outweigh the positives.

Sir David Attenborough’s recent BBC documentary ‘Blue Planet II’ highlighted serious ecological issues, perhaps most strikingly the plastic waste that chokes our oceans, harms wildlife, and even finds its way back into the food chain.

One of the surprises of 2017 was the relatively poor performance of stocks making up the energy sector of the MSCI World developed market equity index. The sector gained just 4.2% last year, compared to the 23.1% advance for the broader index.