BNP Paribas Asset Management

In March, Britain and the EU reached a milestone agreement in their Brexit negotiations, but the road to a sensible outcome remains complex and long, with ample opportunity for spats and setbacks along the way.

Last year, a combination of recovering but still below-potential growth and falling inflation allowed the central banks of many emerging markets (EM) to continue easing their monetary policy, even as developed market (DM) central banks, led by the US Federal Reserve (Fed), were shifting into tightening mode.

Financial markets have experienced another bout of volatility, this time related to an escalation in protectionism involving the US and China.

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.